"The QES findings signal welcome improvements in both the manufacturing and service sectors but the upturn is still very fragile and needs to be nurtured. The rise in the UK's GDP growth has slowed down in recent quarters and given yesterday's figures there is a distinct risk that unemployment will increase further. "The recent progress shown by our quarterly survey is from a low base, and follows a marked deterioration in the first three quarters of 2005. The upturns in the export balances of both manufacturing and services are pleasing features of the Q1 findings but, unless it is nurtured and supported, export growth will fizzle out."
Mr Frost urged the Bank of England's Monetary Policy Committee (MPC) to maintain a flexible stance on interest rates. "We are not unhappy with the MPC's decision earlier this month to leave rates unchanged, but we would expect the MPC to react quickly if economic circumstances worsen," he added. The BCC survey shows that the manufacturing sector recorded increases in its Q1 balances for home sales and orders, export sales and orders, employment expectations, and plant and machinery investment. However, manufacturing recorded declines in its balances for employment, cashflow, and profitability confidence. Most manufacturing balances remain weak overall. Mr Frost continued: "Manufacturing has persistently failed to sustain a recovery. Recent signs of an upturn in manufacturing are very tentative, and the sector still faces real threats. The weak Q1 manufacturing confidence balances, particularly the large fall in profitability confidence, are disappointing and worrying. "Meanwhile Q1 performance in the service sector improved in most areas, but many results remain mediocre overall. Service balances for home sales and orders, export sales and orders, employment and employment expectations, plant and machinery investment, and both confidence balances all rose in Q1. The service sector's improvement in Q4 and Q1 is welcome but it was from a low base, and prospects remain uncertain."