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Britain in recession warns BCC

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By Lee Wild

Date: Tuesday 07 Oct 2008

LONDON (ShareCast) - The British Chambers of Commerce is urging the Bank of England to cut interest rates on Thursday after warning that the country has already plunged into recession.

“Overall, the alarming Q3 results point to worsening dangers of major economic downturn and rising unemployment,” said economic advisor to the BCC, David Kern.

“The results support the view that a UK recession has started and the downturn is getting worse. The domestic economy is under immense pressure.”

The quarterly survey of more than 5,000 businesses revealed that confidence fell to record lows during the period for both manufacturing and services. It was carried out between 25 August and 15 September since when the turmoil has increased markedly.

An “exceptionally bad” quarter following “worrying” results in the previous three-months has left the UK in a “worsening recession”, according to a statement.

Interest rates must drop by half a point, said the BCC ahead of this week’s two-day meeting of the central bank’s Monetary Policy Committee, beginning tomorrow.

“The BCC believes that if the government and the MPC act immediately to return confidence to UK plc, a major recession can be avoided,” it said Tuesday.

Shares in London enjoyed a partial recovery this morning after Wall Street halved huge losses last night and on news that Australia cut overnight interest rates to 6% from 7%, although markets remain exceptionally fragile.

Howard Archer, chief UK economist at Global Insight said the BCC report makes “dire reading and reinforces belief that the economy contracted in the third quarter and is well on its way into recession.”

Chancellor Alistair Darling yesterday claimed the government will “do whatever is necessary to maintain stability”, but stopped short of announcing fresh measures to tackle the credit crunch.

"It's essential that we take action to both support the banking system as a whole - as well as being ready to intervene in particular cases when it's necessary to do so," he told MPs.

London’s index of top 100 shares plunged almost 8% to its lowest since October 2004 on Monday, while Wall Street plunged below 10,000.

Darling meets with other EU member states in Luxembourg today before catching up with G7 finance ministers in Washington at the end of the week.

All the talk is of a recapitalisation plan, said to be backed by Tory leader David Cameron and Bank of England governor Mervyn King, which would see UK taxpayers take a stake in British banks in an effort to get them lending to each other again.

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