Business leaders warn of plunge in confidence

The British Chambers of Commerce yesterday called for urgent measures to stimulate business confidence after its latest survey revealed the economy has lurched to the threshold of slump.

An 'alarming' contraction in domestic orders was combined with a forecast of accelerating unemployment in the next three months and no prospect of early recovery.

Alhough the Treasury is declining to rule out fresh cuts in interest rates to ease recession, John Major cautioned yesterday that rates would be reduced 'only when it is safe to do so'.

Reporting the steepest nosedive in business confidence since national surveys began in 1985, the BCC said its third-quarter survey disclosed an 'extremely pessimistic outlook'.

It found that confidence in manufacturing sank even lower than among services, suggesting that next week's Confederation of British Industry quarterly survey, covering manufacturing companies alone, will point to an even steeper plunge in confidence.

All the main BCC indicators for sales, orders, employment, investment and confidence fell back sharply during the quarter and all regions now report a further slowdown or negative growth.

The survey of 8,242 companies in both service and manufacturing industries was taken between 7 and 25 September - when the pound was forced out of the European exchange rate mechanism - and reflects the uncertainty created by the political and economic turbulence.

Ruling out a 'dash for growth' and doubting the wisdom of steep cuts in interest rates, the BCC instead urged the Government to maintain capital spending on infrastructure, boost support for export promotion, curb public sector pay awards to well below inflation, and freeze the uniform business rate for 1993 as well as exempting empty properties from the UBR.

It also called for fresh efforts to reduce red tape for small business, improved payment terms in the public sector and a new drive for a Gatt accord and a more liberal European air transport regime.

Christopher Stewart-Smith, BCC president, said that if the Government's new policies resulted in key infrastructure projects such as the Jubilee underground line, new roads for the east coast ports and a rail link between Paddington and Liverpool Street stations in London, 'the effect on confidence would be dramatic'.

He added: 'The focus of attention should be on stimulating the break points in the vicious circle - exports and business confidence. In the current climate it is business confidence that needs stimulating before consumer confidence.'

Mr Stewart-Smith said BCC members felt that 'this is not the time to cut important capital investment programmes. Expenditure which contributes to the long- term framework of the economy must be maintained'.

Highlights of the survey show: In the home market manufacturers have been hardest hit, with falling sales and 'an alarming decline' in orders - indicating that a quick turnround is unlikely.

Export sales have shrunk considerably. For the first time in a year manufacturers' order books have contracted and services have experienced almost no export growth.

Job-shedding has risen in the past three months, especially in London. An increasing number of firms plan job cuts.

Investment plans are continually being cut back. Fewer than one in five companies now work to full capacity.

Confidence in rising turnover and profitability has slid back to levels reached a year ago, when the first dip into recession was at its most severe.

Among the regions, London and the West Midlands are the worst-performing. Northern Ireland has suffered least in the past quarter.