Business warns of 'double-dip' slowdown

There is a rising danger that Britain is about to enter a "double dip" or "W-shaped" recession, according to the latest survey of business confidence by the British Chambers of Commerce.

The BCC's second-quarter survey confirms the current consensus on the economy – that "the worst of the recession is over" – but says that employers' hiring intentions are running at a 20-year low and warns of "serious downward pressures". They add: "There is a risk that without a continued focus on limiting the impact of recession, the economy could drop off suddenly, adding weight to the argument that we are heading towards a W-shaped recession."

The BCC survey covers some 5,600 companies: almost all the critical measures – on output, exports and employment – remain in negative territory and many are weak by historical standards.

Many economists believe that the relative weakness of recent data – where the rate of improvement is now starting to slow – will push the Bank of England to use the final £25bn of its quantitative easing programme when the Monetary Policy Committee makes its announcement this Thursday.

The latest news from the Construction Products Association, for example, adds to evidence that the building trade has even now not hit rock bottom. The CPA warns that the construction sector faces a "lost decade" after a record slump in output during 2009 and another three years of pain.

David Frost, director general of the BCC, commented: "The Government needs to think long and hard about its policies on taxation and red tape, which threaten to stifle growth and employment. The planned increase in national insurance contributions is nothing more than a tax on jobs, and it should be abandoned immediately."

The BCC survey follows others, from the CBI, the Bank of England and elsewhere, that shows manufacturing recording a strong bounce-back, although in absolute terms, the manufacturing sector remains in a worse condition overall than services. Economy-wide employment intentions remain depressed. The chambers of commerce predict that unemployment will reach 3.2 million – some 10 per cent of the workforce – by mid-2010. Yorkshire and the East Midlands showed the most pessimistic returns.

John Wraith, the director and head of sterling rates, RBC Capital Markets, indicated a growing view in the City that: "We expect the MPC to announce that the remaining £25bn of reserve creation for asset purchases will be accessed... It will stretch the programme to at least late August, giving the MPC leeway to study the detailed August Inflation Report forecasts before making any major decisions on the future of quantitative easing."

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