GDP growth welcome but no room for complacency
A GROWTH in the economy is welcome but business leaders in the West Midlands have warned against complacency.
Latest figures show the economy grew by 0.5% in the third quarter of the year – well above the 0.1% rise in the second quarter. The rise has been attributed to a strong growth in business and financial services.
However, analysts said growth in the second quarter of the year had been dampened by a number of one-off factors and therefore the Q3 figures could not be interpreted as a massive rebound.
The rise was further tempered by the latest Purchasing Managing Index, which showed the manufacturing sector shrank at the sharpest rate in two years last month as a backlog of orders was completed but no fresh work came in to replace it.
Nida Ali, economic advisor to the Ernst & Young ITEM Club, said: “Although growth of 0.5% is broadly in line with expectations, as temporary factors such as the extra bank holiday affecting Q2 have unwound, they will certainly have the government heaving a sigh of relief. And with healthy growth of 0.7%, it is encouraging to see the service sector resume its traditional role in the UK economy.
“However, adverse developments in the global economy, particularly an escalation of the debt crisis in the Eurozone have weakened the outlook in the coming months. Business surveys are clearly pointing to a slowdown and today’s manufacturing PMI is further evidence of that. At best, we are looking at growth of about 0.9% in 2011 and 1.5% next year.
“The sharp decline in the manufacturing PMI is a genuine cause for concern. What is particularly worrying is the decline in new orders, especially from abroad. Clearly the knock-on effects of the recent turmoil in financial markets are starting to be felt on the UK economy, and these trends are likely to continue in the coming months.”
Richard Halstead, Midlands region director for manufacturing body EEF, said global challenges were growing for Midland manufacturers.
“Confidence is fragile and investment plans remain on hold. The government must grasp the opportunity in its Autumn Statement to inject more energy into its growth agenda and send a clear signal to industry that it is doing everything in its power to sweep away the barriers to growth,” he said.
“Despite manufacturing’s positive contribution to GDP the uncertainty from the Eurozone crisis is clearly now spilling over into weakening demand in the main European markets with confidence slowing markedly.”
Mike Steventon, senior partner of KPMG in Birmingham, said escalating unemployment levels and continuing problems in the Eurozone – still the UK’s largest trading partner – continued to cloud the picture.
“The UK’s ability to maintain the modest economic growth achieved to date in 2011 is inextricably linked to the successful resolution of European financing and the sovereign debt crisis. If Europe goes into recession the UK will most likely follow,” he said.
Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, was another to urge the Government to use the Autumn Statement to lay down a clear growth strategy.
“The growth is above many commentators’ estimates for quarter three. That said, it did come on the back of weak growth in the second quarter so it is certainly not time to start celebrating or thinking that the job is done in terms of the economic recovery,” she said.
“Our members need the barriers to growth removed and the Government can make a real difference with their Autumn Statement.
“That means stripping back red tape – particularly when it comes to employment – and the Government doing more to get the banks to lend, particularly to small businesses which need finance to grow.”
