Recession risk for Britain

Recession may hit Britain as confidence levels among businesses plunge, survey finds.

In the second quarter, the British Chambers of Commerce (BCC) found cashflow is in negative territory and at record lows, reflecting the impact of the credit crunch, while confidence in the services and manufacturing sectors plunged.

The manufacturing sector's balance for home sales fell 15 points to -3 per cent, the lowest since the fourth quarter of 2001, while the service sector's domestic balances recorded even bigger declines with the net balance for home sales falling 19 points, to -2 per cent.

BCC director-general David Frost said: "These results show a real risk of recession in the coming months.

"This is obviously deeply worrying, not just for business but for the consumer too, with both manufacturing and services reporting negative results.

"I am sending Alistair Darling and Gordon Brown a strong message from the businesses I meet every day up and down the country: to put more pressure on business would not only restrict growth and hit the consumer hard, it would further crush what our economy is based on - confidence."

The following key service sector balances are at their lowest level since the recession of the early nineties: home sales and orders, employment expectations, and both confidence balances, the BCC said.

The body added it believes the correction period is likely to be longer and worse than anticipated.

David Kern, economic adviser to the British Chambers of Commerce, added: "A major recession can still be avoided, but forceful measures are needed to improve confidence.

"The MPC must resist misguided calls for higher interest rates. Indeed, if wage pressures remain muted, the option of early interest rate cuts must be considered."

The monetary policy committee (MPC) meets on Thursday to set the interest base rate.