Double dip recession looms as housing boom slows

Britain is in danger of plunging into a double-dip decline while the housing market has already ground to a halt and profit warnings are on the increase, according to a set of gloomy assessments published today.

A survey of more than 6,000 firms by the British Chambers of Commerce (BCC) shows that confidence among companies for the coming months has fallen sharply.

Companies said they expected sales and profits to fall and warned they planned to make deeper cuts in both staffing levels and investment plans.

This was underlined by a survey from Ernst & Young, the accountancy group, showing that 106 profit warnings were made during the three months to December, an increase of 19 per cent over the previous quarter.

David Kern, BCC's chief economic adviser, said: "There's the potential for the economy to grow, but it gives the warning that it could become a double dip. Everything is fragile and uncertain and we have an economy where the risks are very significant."

Mr Kern said the survey's forward-looking indicators were much worse than companies' answers on their performance over the past quarter.

Confidence among manufacturers for sales and profits has fallen "markedly", the BCC said. They plan to shed jobs at the fastest rate for a year and intend to cut back on investment.

Services firms' confidence for profits and sales fell slightly from strong levels. But their employment intentions fell to a four-year low.

According to the Ernst & Young survey the leisure, entertainment & hotels sector saw the most dramatic rise, followed by support services, construction & building materials, and media & photography.

Economic conditions were blamed as 43 per cent of companies said "difficult market/trading conditions" was the single most common cause of their profit warnings.

Kevin Hewitt, corporate restructuring expert at Ernst & Young, said: "Companies exposed to consumers tightening their belts on discretionary spending have contributed strongly to the rise in profit warnings for the second quarter in a row. This momentum looks irresistible and we anticipate a further increase in profit warnings in the first quarter of this year."

There is fresh evidence today that the housing market is slowing after record growth in 2002, led by price falls in London last month. Prices fell in more than four out five London boroughs as the average price of a home in the capital fell 0.1 per cent, according to the property website Hometrack.

The City of London dropped 0.6 per cent and Camden, north London, and Kensington and Chelsea, west London, both fell 0.4 per cent. This is the third successive monthly fall and was driven by a fall in the number of buyers and an increase in homes on the market. Overall, prices rose 0.1 per cent across the UK.