UK business lobby warns of double-dip recession

LONDON - There is a rising danger that Britain is about to enter a "double dip" or "W-shaped" recession, according to the latest survey of business confidence by the British Chambers of Commerce.

The BCC's second-quarter survey confirms the current consensus on the economy - that "the worst of the recession is over" - but says that employers' hiring intentions are running at a 20-year low and warns of "serious downward pressures".

"There is a risk that without a continued focus on limiting the impact of recession, the economy could drop off suddenly, adding weight to the argument that we are heading towards a W-shaped recession."

The BCC survey covers some 5600 companies: almost all the critical measures - on output, exports and employment - remain in negative territory and many are weak by historical standards.

Many economists believe the relative weakness of recent data - where the rate of improvement is now starting to slow - will push the Bank of England to use the final £25 billion ($64 billion) of its quantitative easing programme when the Monetary Policy Committee makes its announcement on Friday.

The latest news from the Construction Products Association, for example, adds to evidence that the building trade has even now not hit rock bottom.

The CPA warns that the construction sector faces a "lost decade" after a record slump in output during 2009 and another three years of pain.

David Frost, director general of the BCC, commented: "The Government needs to think long and hard about its policies on taxation and red tape, which threaten to stifle growth and employment. The planned increase in national insurance contributions is nothing more than a tax on jobs, and it should be abandoned immediately."

The BCC survey follows others, from the Confederation of British Industry, the Bank of England and elsewhere, that shows manufacturing recording a strong bounceback, although in absolute terms the manufacturing sector remains in a worse condition overall than services.

Economy-wide employment intentions remain depressed. The BCC predicts unemployment will reach 3.2 million - about 10 per cent of the workforce - by mid-2010. Yorkshire and the East Midlands showed the most pessimistic returns.

John Wraith at RBC Capital Markets indicated a growing view in the City: "We expect the MPC to announce that the remaining £25 billion of reserve creation for asset purchases will be accessed.

- INDEPENDENT