Economic Growth but concerns remain over a double dip recession

The economy has continued to grow throughout this year, although as widely reported the recovery remains fragile.

The latest economic survey from the *BCC* collected data from 5,000 firms across the country. These companies reported a growth rate of between 0.6% and 0.7% to the quarter ending June.

There remains sluggish growth in the service sector and when interviewed manufacturers are becoming concerned at the rises in the cost of raw materials which they are unlikely to absorb for much longer and where prices will have to be increased for the end user.

The manufacturing sector has experienced the highest export sales for the last 4 years due to the more competitive exchange rate.

Low interest rates and inflation concerns

This is clearly good news for the UK economy although our concern is that the low interest rates can no longer remain if inflation is to be kept within target of 2%.

The Bank of England has held interest rates for a consecutive 17 months at an historical low of 0.5%. Recently The Monetary Committee also left their £200bn quantitative easing programme in place.

Double dip recession threat

We have however reached a crossroad where the Monetary Committee are going to have to consider whether they tackle inflation which is currently running above the Bank’s 2% target at 3.4% or continue to support the economy as a whole and to try and not prematurely put the economy into a double dip recession.

There are clearly major problems in the Euro zone and even China has seen a substantial decrease in growth. It may therefore be that growth in the short term will be restricted and so it would be prudent to keep the Bank of England base rate at its current rate to assist businesses during this extremely uncertain time.

Emergency budget public expenditure cutbacks

The recent emergency budget made important steps towards stabilising the public finances and to some degree and possibly more importantly, the UK’s credit rating. The severity of the cut backs is yet to hit but it is evident that a lot of private sector companies who are indirectly employed in Government projects will have to take action to cut their cost base and if possible diversify into other fields.

The increase in VAT from January 2011 may coincide with an increase in interest rates and for this reason we believe that 2011 will be a challenging time for all businesses as both the public and corporate sector will inevitably reduce their expenditure.

Corporate insolvencies fall again

The insolvency world has noticed a significant reduction in corporate insolvencies. There were 18% fewer insolvencies in May than in April and 24% below the figure for May 2009. This was the third consecutive month where there was a decline in the number of insolvencies recorded and must be a positive for the economy as a whole.

Double Dip Recession Threat. Low Interest Rates and Inflation Concerns. Emergency Budget Public Expenditure. Corporate Insolvencies fall for the third consecutive month.

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