In spite of a modest improvement in the UK economy, the upturn is still fragile, the British Chambers of Commerce (BCC) has warned.

Reacting to today's publication by the Office for National Statistics of preliminary GDP figures for Q1 2006, David Kern, Economic Adviser to the BCC, said: "The new GDP estimates for Q1 2006 confirm that the worst may be over for the UK economy. But the upturn is very fragile and many risks persist.

“Year-on-year growth improved to 2.2% in Q1 2006, after four consecutive quarters of dismal year-on-year growth below 2%. Today's figures were broadly in line with market expectations, and the improvement seen in Q1 was consistent with the results of the BCC's Quarterly Economic Survey (QES) published earlier this month.

"Quarter-on-quarter GDP growth was only 0.6% in Q1 2006, the same as in Q4 2005, and there is as yet no evidence of sustained recovery. Manufacturing recorded 0.5% growth in Q1, but this comes after a disastrous performance in 2005. In year-on-year terms, manufacturing still shows a fall of 0.8% in Q1 2006.

“Services quarter-on-quarter growth decelerated sharply, from 1.0% in Q4 to 0.6% in Q1. Within the service sector, we are very worried by the disappointing performance of the distribution, hotels & catering sub-sector, which stagnated in Q1 and grew by only 1.0% last year."

David Kern concluded: "In spite of the modest Q1 improvement in GDP growth, the upturn in the economy is vulnerable to setbacks. UK unemployment is rising, businesses face huge cost increases, and the recovery could easily go into reverse. Year-on-year GDP growth is still below trend.

“While we are not calling for an immediate interest rate cut, we expect the Bank of England to react quickly to signs of weakness. We urge the Chancellor to give greater weight to the serious problems facing UK businesses."