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Threat of economic setback worries BCC

Date: Tuesday 06 Jul 2010

Threat of economic setback worries BCC

UK plc continued to grow in the second quarter, but the British Chambers of Commerce (BCC) warns “serious” concerns about the economic recovery remain.

The BCC estimates growth of between 0.6% and 0.7% for the three months to the end of June after receiving data from 5,600 businesses around the country.

"Despite an improvement in manufacturing, the sector still faces serious risks,” said BCC drector general, David Frost. “Given the sector's poor long-term historical record, it is much too early to conclude that we are now seeing a sustainable manufacturing upturn.”

“The service sector, which accounts for the bulk of GDP in the UK, is not recovering at an adequate pace and this heightens the threat of an economic setback."

A weaker than expected report on Britain’s services sector yesterday raised concerns about the strength of the country’s economic recovery.

The Markit/Chartered Institute of Purchasing and Supply (CIPS) services purchasing managers index fell in June for the third time in four months, down to 54.4 from 55.4 in May. Economists were looking for 55.2.

There are also worries about the rising cost of raw materials. Some 80% of the BCC’s manufacturing members cited them as putting pressure on prices.

Howard Archer, chief UK economist at IHS Global Insight, adds fuel to the fire.

“Although the BCC does not mention them, to this list of threats to UK growth can be added the Eurozone's problems and growing concerns of a global double dip,” he said.

“The BCC highlights the importance of keeping interest rates low for an extended period to promote business investment.”

Archer reckons the Bank of England will keep rates down at 0.50% through the rest of 2010 before raising them only “gradually and modestly” in 2011.

The central bank announces its latest decision Thursday. Last month, MPC member Andrew Sentance voted for an increase of 25 basis points to 0.75%.

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