UK faces another quarter of recession

Latest survey suggests economic rebound has not yet seen growth go positive
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The Independent Online

Britain is on the brink of emerging from recession, business leaders predicted yesterday. According to the latest survey for the British Chambers of Commerce (BCC), which assessed the confidence of more than 5,500 companies, "the decline in economic activity is coming to an end, though much of the rebound is from historic lows".

The accountant Pricewaterhouse Coopers also released its latest forecasts yesterday, highlighting the need for the Government to plug a £43bn hole in the public finances, even if Britain does return to some kind of growth. It dismissed the Government's announcement of a £16bn sale of public-sector assets as not being sufficiently large to alter its "fundamental view", and pointed out that the broad outline of the policy already been announced in the Budget by the Chancellor, Alistair Darling. The BCC's poll will dash hopes that the UK will indeed be shown to have returned to positive growth this quarter when official figures are released in ten days' time.

BCC members reported that their domestic orders and sales had "strengthened significantly" over the past three months, particularly in manufacturing. However, the readings were still in negative territory, "making it difficult to argue that the UK has already emerged from recession".

The British Retail Consortium added to the cautious mood, declaring that confidence was "trickling back" to the high street, with September's like-for-like retail sales 2.8 per cent higher than they were a year ago.

David Kern, the chief economist at the BCC, said: "The economy is on the brink of leaving recession. However, the improvement is not sufficiently strong to allow us to conclude without doubt that GDP has already returned to positive growth." Other signs about the underlying health of the economy are also mixed.

The Royal Institution of Chartered Surveyors confirmed that house prices were firming up, especially in the South of England. The number of surveyors telling the RICS that prices were rising exceeded the number who said prices were falling by 22 per cent, the best balance since May 2007. However, in common with the Nationwide, Halifax and others, they stressed that much of the increase in property values resulted from the acute shortage of homes coming on to the market.

Demand among home-buyers is still being constrained by a lack of finance, said the Council of Mortgage Lenders (CML). In a setback to recent movements, the CML added that the number of mortgage approvals edged down by 5 per cent between July and August, to 52,700 , although this was still 29 per cent higher than last year's extremely depressed figures. The value of home loans fell by 3 per cent.

Howard Archer, a UK economist at Global Insight, said: "Any sustained rise in house prices will mean affordability pressures will move back up at a time when still pronounced economic weakness, high and rising unemployment and low wage growth is negative for the housing market.

"Meanwhile, it continues to be very difficult for many people to get mortgages. Consequently, despite further likely gains in the very near term, we suspect house prices will be prone to significant relapses and will very likely be no more than flat overall between now and the end of 2010."

A net balance of only 4 percent of surveyors said new instructions had risen in September, compared to a balance of 12 per cent in August. Correspondingly, the average number of unsold properties on surveyors' books remained unchanged at 64.

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