Global Economics

UK Recession Ends as Confidence Grows


A new study from British accountancy group reports the biggest rise in business confidence in two years and predicts a return to growth in the third quarter

Britain is set to move out of recession and record growth in GDP of 0.5 per cent in the current quarter, the Institute of Chartered Accounts in England & Wales will say this morning.

The ICAEW's Business Confidence Monitor shows confidence among professionals has turned positive for the first time in two years with a record rise from -28.2 to +4.8.

The organisation's survey has closely tracked the economy and the ICAEW says it is therefore confident of predicting growth of 0.5 per cent this quarter. In a further sign of optimism, the CBI said Britain's services sector, which accounts for about two-thirds of the economy, is finally stabilising.

The CBI said while business levels in the crucial sector remained below normal for the time of year, the shortfall in activity was much smaller than it had been in the previous quarter.

Britain's economy has been a laggard in the developed world, showing a contraction of 0.8 per cent in the second quarter. While that was a marked improvement on the first quarter's 2.4 per cent slump, France, Germany and Japan were all able to report growth over the same period.

Michael Izza, chief executive of the ICAEW, said: "This quarter's BCM suggests that the UK recession is at an end." But he added: "While there is no doubt that the UK economy is on its way to recovery, we shouldn't underestimate the challenges ahead for businesses... The recovery is very fragile."

The ICAEW's report—compiled from the responses of 1,000 chartered accountants between May 13 and August 3—found IT is the most confident sector (+18.5 per cent), followed by banking, finance and insurance (+15.9 per cent) and property (+11.7 per cent). The banking improvement was fuelled by the stabilisation of the sector while property was helped by signs of recovery in the housing market.

The ICAEW said policy interventions, such as the taxpayer's rescue of the banking sector and Bank of England's quantitative-easing programme—colloquially known as "printing money"—had helped to turn the tide.

The CBI divides the services sector into two categories, with business and professional services firms, such as those in accountancy, law and marketing, actually reporting an increase in business volumes over the past three months, the first time they have been positive since May 2008.

Consumer services businesses, including hotels and the food sector, continued to report a decline in business volumes, but the rate of deterioration has slowed markedly.

While the CBI's research will encourage those who are optimistic about the UK's prospects of coming out of recession during the current quarter, the group, like the ICAEW, still warned of reasons to be cautious. In particular, across the services sector, businesses are seeing downwards pressure on profits because of deflation, the CBI said.

Lai Wah Co, head of economic analysis at the CBI, said: "Business conditions remain difficult for service sector firms; they have had to cut the price of their services in order to compete for business, and this has pushed down their profitability further over the past three months. However, service sector activity has not been anywhere near as weak as in recent quarters and things are starting to look up."

Provided by The Independent—from London, for Independent minds

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