The Quarter 1 2008 British Chambers of Commerce Quarterly Economic Survey of 4,381 firms is gloomy. For both the manufacturing and services sector virtually all the critical balances have worsened and the British Chambers of Commerce believes that interest rate cuts will be needed in the next few months. The Service Sector’s Q1 confidence balances recorded big falls with turnover confidence falling 10 points, the lowest since Q1 2003 and profitability confidence plummeting to its lowest since Q4 1998. Net balances for home sales have fallen to their lowest point since Q3 2005 whilst the net balance for home orders fell to the lowest since Q4 2005. The Manufacturing Sector also saw turnover confidence falling by 3 points, lowest since Q3 2005 whilst profitability confidence dropped 12 points, the weakest since Q1 2006. Balances for home sales and home orders for manufacturing both dropped to disturbingly low levels by historical standards whilst export performance weakened further in Q1. Worryingly, the balance of manufacturing firms reporting pressure to raise prices rose to +42 per cent, a new all time high, whilst the service sector than balance of firms expecting to increase prices also rose to a new all time high, +43%. Commenting on the Q1 2008 Quarterly Economic Survey, David Kern, economic adviser to the British Chambers of Commerce, said: “The latest Quarterly Economic Survey results are worrying. Virtually all the critical balances have worsened for both manufacturing and services whilst at the same time the pressure to raise prices has reached an all time high.“The global credit crisis is likely to damage growth for some considerable time, before it is resolved. The UK economy is set to slow very markedly in 2008, regardless of whether the MPC cuts interest rates. The unpleasant mixture of sharply slowing growth, and increases to new peaks in intentions to raise prices, confronts the MPC with difficult choices. Inflationary risks cannot be ignored, but with demand weakening and capacity utilisation balances declining, firms are unlikely to secure big price increases in spite of their intentions.
“Our members remain fundamentally resilient. If the right policies are adopted, a recession can be avoided and the damage associated with the slowdown can be limited. However, the threats to growth are mounting and there is no room for complacency. It is vital to ensure that the crisis in the financial sector and in the housing market does not damage the productive business sector.”