Business leaders express disappointment at re-entering recession

BUSINESS leaders have expressed their disappointment at latest growth figures which show the UK re-entered recession in the first quarter of this year.

The latest figures from the Office for National Statistics show the economy contracted 0.2% during the first three months of this year. Following the negative growth in the final quarter of 2011, the economy is technically in recession.

However, many have said conflicting economic data and survey information has created a confused picture.

Michael Ward, president of Birmingham Chamber of Commerce said that while technical recession UK-wide had not been avoided, there were indications the West Midlands was significantly outperforming the rest of the country and experiencing marked growth.

He said: “The chamber’s latest economic survey shows sustained growth across domestic and export sales and orders in Greater Birmingham. This is being driven by the region’s manufacturing sector which is reporting strong demand in Asia and America.

“Nonetheless we must continue to push for a better environment to encourage businesses to invest. We are asking the Chancellor to reverse his Budget decision to decrease the annual investment allowance from £100,000 to £25,000.  This is a quick way of getting business to invest now in capital equipment.

“By increasing capacity and so innovating, British business will be able to take advantage of favourable export conditions and growing market places.  

“Revised planning procedures and new major developments such as the Genting Casino at the NEC and new Birmingham airport runway will create jobs but these plans need to be pushed forward more rapidly and not held up by red tape. Then perhaps we can all look forward to faster GDP growth.”

The CBI said it was surprised by the announcement. John Cridland, CBI Director-General, said: “This disappointing news comes as something of a surprise. Since the turn of the year, business confidence has improved and, while still challenging, underlying economic conditions also appear to have strengthened.

“In particular, the weakness of the services sector data does not tally closely with a range of survey indicators suggesting that the sector has been picking up through the first quarter.

“Looking forward, there are indications that the economy is slowly recovering from the blow to confidence and activity which resulted from last autumn’s turmoil in Eurozone financial markets.”
 
Richard Halstead, Midlands region director at EEF, the manufacturers’ organisation, said: “While manufacturing output appears to have gained ground in March, another quarterly contraction is a concern.

“However, the underlying health of individual sectors is particularly fuzzy at the moment, with a raft of surveys pointing to a modest improvement in manufacturing trading conditions in the first few months of the year.  

“These figures are both a reminder of the big challenges facing the UK and world economies, and a confirmation of the patchy and unsteady recovery that had been expected.”

The Coventry and Warwickshire Chamber of Commerce has warned against ‘panicking’ on the back of the latest figures.

Louise Bennett, the chamber chief executive, said a recent survey among businesses in Coventry and Warwickshire had illustrated that confidence was returning.

“The ‘r’ word can have a psychological effect on businesses and on economic confidence in general but, in reality, should a company change its plans today based on whether the economy contracted by 0.2% in the first quarter? Of course not,” she said.

“We have seen more positive figures in recent weeks with regards to employment but more needs to be done to help companies take on more people.

“Employing people should be incentivised not lead to burdensome red tape.

“The issue surrounding access to finance must be properly looked at too. There has been billions of pounds worth of Quantitative Easing but that needs to get through to the real economy to help more businesses invest.”

She said investment in new businesses, new products, new developments, new markets and in people was the only way stronger, sustained growth would return.

John Rider, West Midlands chairman of the Institute of Directors, said: “The GDP figures are disappointing though I remain confident that we can haul ourselves out of recession in due course.

“Everyone needs to focus on economic growth and create the jobs which are so badly needed.

“But we also need genuine political support to encourage business to flourish.

“The one encouraging element was a small increase in the contribution from manufacturing.

“The message is – don’t panic.”

Ian Stewart, Deloitte chief economist, said the news had dealt a blow to the UK economy at a time when business confidence had been increasing.

“The latest Deloitte CFO Survey published this month highlighted the tensions between short term corporate optimism, which had risen significantly, and the underlying caution on the part of major businesses about how they run their balance sheets,” he said.
 
“Rising levels of optimism had not yet led major UK corporates to adopt significantly more expansionary policies. The materialisation of a double dip recession, albeit one likely to last just two quarters, is likely to be seen as vindicating a cautious stance on the part of corporates.
 
“Corporate cash reserves remain at near record levels and one interpretation is that relatively high levels of cash represent an insurance policy against a volatile environment. Having been wrong footed by a weakening of the economy last year UK businesses may demand greater certainty and more evidence that recovery is on track before they are willing to raise capital spending.”

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said the initial reaction to the figures was one of disbelief.

“The divergence between the stronger survey data and dire official output estimates is virtually unprecedented and must raise significant question marks over the quality of the data,” he said.

“The construction figures are an obvious source of bewilderment, but the services data also looks highly questionable given what we already knew about the early part of the quarter. Certainly the impression that we have from talking to businesses is the UK economy is not in recession.
 
“I would be very surprised if these figures were not revised upwards substantially over the coming months. The concern now is that the extra Bank Holiday in June will cause another negative in Q2 and that the prospect of three successive negative quarters will further depress confidence and reinforce the culture of risk aversion which is preventing any sustainable recovery.”