|UK SHOWING SIGNS OF 'TWO TIER' GROWTH AS SERVICES LEAD MANUFACTURING
July 7 2015.
- The BCC's economic survey for Q2 2015 indicates continued UK economic growth, but highlights sharp differences between manufacturing and services.
- In services, the results remain broadly positive and signal growth.
- But in manufacturing, virtually all the key national balances recorded declines.
The British Chambers of Commerce (BCC) Quarterly Economic Survey (QES) – one of Britain's largest and most authoritative private business surveys, based on almost 7,500 responses from firms, employing around 800,000 people – shows that in the second quarter of 2015 the service sector continued its current trend of steady progress but manufacturing firms reported much weaker growth.
While most key national service sector balances recorded small increases in Q2 2015, virtually all the key national manufacturing balances recorded declines in Q2 – continuing the slowdown seen in Q1.
Key findings in the Q2 2015 Quarterly Economic Survey:
- Most key national service sector balances recorded small increases in Q2 2015, and most balances are now higher than their average 2007 pre-recession levels.
- In services, the domestic and export balances recorded mixed movements in Q2, but the overall growth level for sales and orders remained broadly static. The balance for domestic sales fell (+31% in Q2 2015, down from +34% in Q1 2015), while the balance for domestic orders increased marginally (+29% in Q2, up from +28% in Q1). The export sales balance fell by two points in Q2 to +19%, and the export orders balance increased by three points in Q2 to +20%.
- However, the service sector balances for employment, investment, confidence and cashflow increased slightly between Q1 & Q2 2015, signalling stronger growth.
- In contrast, all the key manufacturing balances fell in Q2 2015 and most balances are now lower than their average 2007 pre-recession levels.
- The intentions to raise prices balance has risen markedly in manufacturing (+23% in Q2 2015, up from +11% in Q1 2015) but is down slightly in services (+20% in Q2 2015, down from +23% in Q1 2015).
- The balance for pressures on capacity is down slightly in manufacturing (+34% in Q2 2015, down from +36% in Q1 2015) and is up slightly in services (+46% in Q2 2015, up from +43% in Q1 2015).
- In spite of disappointing features, the Q2 results still point to continued economic growth, but with many headwinds, notably in manufacturing.
John Longworth, Director General of the British Chambers of Commerce, said: "These figures give us the best, most current insight into business experience and sentiment. Overall, they indicate that we will see continued growth in the economy, thanks mainly to the strength of the services sector. But the difference in results also raises the prospect of the UK experiencing two-tier growth – with modest expansion in services and markedly slower growth in manufacturing and goods.
"The manufacturing sector has battled against structural problems for years but, even in that context, the scale of the slowdown being experienced by our manufacturers is a surprise and a concern. Part of the reason might be down to the strength of sterling against the euro and the dollar. But currency fluctuations are not the only issues at stake.
"We have three structural problems that are also hurting our manufacturers and growth companies. First, chronic underinvestment, exacerbated by lack of capital and lack of long-term incentive. Second, underinvestment in infrastructure and third, insufficient focus on helping more businesses succeed in new markets overseas. The Chancellor’s Budget, the forthcoming spending review and the remainder of this Parliament should focus on tackling these issues for the long-term.
"If we are to secure long-term, sustainable, diversified growth, the government must tackle these structural problems, which act as a brake on our economy."
David Kern, Chief Economist at the British Chambers of Commerce, said: “The Q2 2015 results point to continued moderate growth in the UK economy over the next year, driven mostly by the service sector. But the Q2 declines in all the key manufacturing balances are as disappointing as they are worrying.
“In the service sector, the Q2 2015 results are positive overall, and most key balances recorded small increases. With most service balances now higher than their average 2007 pre-recession levels, the sector’s prospects remain encouraging. In contrast, manufacturing and construction are facing difficult problems that require a determined policy response.
"It is clear that the UK recovery remains unbalanced and growth is still too reliant on consumer spending. While a healthy consumer sector is vital, much greater efforts are needed to increase the economic contributions of investment and exports - which, in turn, will boost our productivity and help tackle the unsustainable external deficit."
Further findings from the Survey:
- In services, the balance for employment expectations increased from +26% in Q1 2015 to +30% Q2 2015, the balance for investment in training intentions increased from +21% in Q1 2015 to +24% in Q2 2015, the balance for business confidence, relating to improved turnover over the next year, increased from +50% in Q1 2015 to +55% in Q2 2015 and the cashflow balance increased from +12% in Q1 2015 to +17% in Q2 2015.
- In manufacturing, the employment expectations balance fell from +32% in Q1 2015 to +27% in Q2 2015, the investment in training intentions balance fell from +33% in Q1 2015 to +26% in Q2 2015, the balance for business confidence, relating to improved turnover, fell from +55% in Q1 2015 to +51% in Q2 2015, and the cashflow balance was static at +11%.