Q2 2010 Economic Survey points to continued UK growth

Tuesday, 6th July 2010

Results of the latest Economic Survey, which included responses from Thames Valley Chamber of Commerce members, suggest that the UK economy saw further growth in the second quarter of 2010, building on the improvement in the first three months of the year.

Key indicators on business conditions, such as employment expectations, investment plans, export orders, and domestic sales – in both the manufacturing and service sectors – made gains in Q2.

Commenting on these figures, Claire Prosser, policy executive for the Thames Valley Chamber of Commerce Group, said: “These results contain some very positive features, indeed notably the improvements in sales, advanced sales and export advance orders in the manufacturing sector. It highlights how – in the recent months – manufacturing companies in the Thames Valley are showing a steady recovery, but with more to go.”

“In both the service and manufacturing sector, members had tried to recruit staff for full time jobs and employment expectations were high. It is encouraging to see that businesses are looking to take on new staff, that they are confident that there is work for them.”

“From the recent Emergency Budget announcement, our members were clear that VAT was the ‘least worst’ tax rise they could face. While the rise will inevitably affect businesses and consumption, we are pleased that the Government has put off the increase to 4th January 2011. A few days’ delay after New Year gives businesses time to adjust.”

Despite the encouraging results, the Chamber warns that underlying weaknesses in the economy remain, which cannot be ignored if we are to avoid a relapse into recession. The business group highlights sluggish growth in the service sector as a serious concern, and more specifically, a huge number of manufacturers (around 80%) are now reporting that the cost of raw materials is increasing, adding to price pressures.

Claire continued:

“With very austere times ahead, no one should think that the UK’s economic recovery is totally secure. There will need to be an unwavering focus on ensuring business is able to deliver growth, create jobs, and drive a lasting recovery. Interest rates will have to stay low for longer, burdensome new employment red tape must be blocked, and we will have to generate growth across all regions of the country.”

“As the Government has now embarked on the vital task of curbing the UK’s unsustainable budget deficit, it is essential to create the right business conditions that will enable wealth creating companies to drive a lasting recovery – with a rebalanced economy focused on investment and exports at its heart. The Chamber wishes to thank members who have taken the time to complete the survey.”

The economic data, collected across every region of the country, is released just two days ahead of the Monetary Policy Committee’s July interest rate decision.

The highlights from the Q2 QES include:

• Manufacturing home sales surged by 29 points in Q2, to +30%; a level not seen since the last quarter of 2007. The service sector’s domestic sales rose 6 points, to +12%.

• Manufacturing export sales increased by 11 points, to +31%; its highest level since Q3 2006 and an indication that exporters are benefiting from a more competitive exchange rate. The service sector’s export balances recorded modest increases and they remain weak by historical standards.

• Employment in manufacturing saw a big improvement in Q2, rising 35 points to +19%. Manufacturing employment expectations also increased by 16 points, to +14%. Employment in services edged up by just 1 point, to +4%, while employment expectations rose 3 points, to +11%.

• One of the most worrying aspects of this quarter’s results is the pressure manufacturing firms are facing to increase prices, driven by the cost of raw materials. The balance of manufacturers reporting pressure to raise their prices surged 22 points in Q2, to +30%, which is the highest figure this survey has seen since Q3 2008.

• Confidence improved among manufacturers in Q2. However, the service sector’s confidence measures weakened – a disappointing setback at this early stage of the recovery.

• Manufacturing’s cash flow improved by 10 points, to +1%. Services cash flow improved 6 points, but remains negative at -3%.

Note to editors:

These results come from the recent Quarterly Economic Survey (QES) for Q2 2010 (April, May and June).

Press enquiries please contact
ginettegower@thamesvalleychamber.co.uk