Reports warn that UK recovery is vulnerable: LBS says unemployment will climb again

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The Independent Online
TWO new reports pointed yesterday to the patchy nature of the recovery with Britain's largest chamber of commerce warning that higher trade inquiries were not being matched by climbing orders.

The latest assessment of the British economy from the London Business School, meanwhile, warns of a 'fragile' recovery in which unemployment will resume its climb after four monthly falls, breaching 3.1 million by 1994. LBS, whose chief economist David Currie was one of the 'seven wise men' reporting their economic assessment to the Chancellor last week, says total employment will only end its decline by 1994. It will take until late next year for unemployment - which fell 26,000 to 2.914 million in May - to fall below 3 million again.

The gloomy LBS prognosis coincides with the latest survey of business trends by the Birmingham Chamber of Commerce. 'We have seen a definite increase in confidence,' the chamber says, 'but companies are still holding back, indicating a reluctance to commit themselves to significant spending.'

Th chamber cited political uncertainty, deepening recession in Continental Europe and poor availability of appropriate business financing as factors holding back business.

It urged a fresh look at financing packages for companies 'which could relieve investment inhibition and convert those inquiries into firm orders, especially for smaller companies.'

Although exporters worry that the European downturn will spill over into the UK, improving trends for manufacturers are having a positive impact on the service sector, where the survey reports increased business and a surge in confidence.

The LBS forecasts that growth will reach 1.5 per cent this year, almost doubling to 2.8 per cent in 1994. Although consumption has helped to boost the first stages of recovery, it is likely to be short-lived since already announced tax increases will hold back growth of disposable incomes.

LBS expects the recovery to be driven more by exports and investment over the medium term and believes that underlying inflation, at 2.8 per cent, has hit a cyclical low.

Otmar Issing, a member of the Bundesbank directorate, says today that when central bank independence is coupled with the objective of price stability, economic performance improves. In a paper for the Institute of Economic Affairs, Mr Issing argues that the greater the independence from political control the lower the average rate of inflation.

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