British economic activity slowed sharply in the third quarter, the British Chambers of Commerce said on Tuesday, reiterating its call for the Bank of England to inject more stimulus to protect the recovery from budget spending cuts. The BCC's Quarterly Economic Survey showed a sharp deterioration in domestic demand for both services and manufacturing firms, and export demand also softened, indicating growth weakened from a robust 1.2% expansion in Q2.
BCC chief economist David Kern said the slowdown in the services sector was particularly worrying, as it came even before the government launches austerity measures, which kick off with a rise in value-added tax from January.
Recent economic data have been mixed, but broadly indicate that the recovery is tailing off. A small but growing minority of economists reckon the BoE will have to pump more money into the economy to keep growth on track.
Kern urged the BoE to expand its quantitative easing programme by 50 bln pounds before the end of this year to prevent Britain sliding back into recession.
"We're not saying 50 bln is a guarantee of success, but it's nevertheless something which we feel should be done before the end of the year because what we do know is that the impact of the increase in VAT and the subsequent (budget) cuts is to dampen the economy."
The government will next week reveal details of where 80 bln pounds in spending cuts will fall as it seeks to virtually eliminate a budget deficit equivalent to about 11% of economic output over the next five years. The cuts are expected to cost more than half a million public sector jobs.
SUBDUED OUTLOOK
The BCC survey points to economic growth of just 0.5% between July and September, less than half the rate of growth in the second quarter, and suggests there is little scope for the private sector to fill the gap left by government cuts.
The domestic sales balance for the services sector fell to 4 from 12 in Q2 and the orders balance slipped into negative territory at -4, the lowest since the end of last year when Britain was just emerging from an 18-month long recession.
Services firms' employment expectations fell to their lowest in more than a year and manufacturers also expected the pace of recruitment to slow from a 3-year high in the second quarter.
Nonetheless, manufacturers were their most confident about turnover over the next 12 months, with a balance of 49% of firms expecting an improvement — the highest in three years.
Services firms, by contrast, were much less optimistic, with the balances of confidence in turnover and profitability falling to their lowest since Q2 2009 when Britain was still in the depths of recession.
