No recession this year, says BCC

THE UK ECONOMY is set to avoid recession this year, according to a new survey, with signs of recovery beginning to appear even in the struggling manufacturing sector.

Evidence from the British Chambers of Commerce (BCC) quarterly survey - the most comprehensive study of its kind - suggests the economy has turned the corner, analysts said. Growth in the first quarter is still expected to be weak, but the economy is well positioned to bounce back later in the year.

Neil Parker of Royal Bank of Scotland said: "This shows we are over the worst of the turmoil. It's time to get optimistic about the UK economy."

Activity was subdued throughout much of Britain during the first three months of the year, the BCC said. Manufacturing sales to the domestic market, for example, were at their lowest level since the end of the last recession.

However, leading indicators of economic activity - such as manufacturers' order levels - were significantly improved. This suggests growth will pick up markedly as the year goes on.

The survey results for the services sector were particularly healthy. The sector as a whole reported positive UK sales growth for the first time in a year, while service exports expanded for the first time in six months. As with the manufacturing sector, the BCC survey found evidence of sharply improved business confidence.

In the City, gilts fell as traders scaled back their expectations of further interest-rate cuts. The pound strengthened against the euro to close at 66.53p.

Despite the upbeat tone of the survey, Dr Ian Peters, BCC deputy director- general, called the recovery "fragile" and urged the Bank of England to cut interest rates by a further quarter-point next month. He said: "The important thing is not to get carried away. The onus on the Bank must now be to nurture this fledgling upturn."

But even Dr Peters - a long-time advocate of lower interest rates - acknowledged that the bottom of the UK interest-rate cycle was now approaching.

He said: "A quarter-point cut is necessary, but after that we will be getting to the point where the scope for further cuts will be limited."

Fewer of the survey respondents expressed concerns about the level of sterling which, contrary to expectations, has strengthened against the euro since the beginning of the year. Dr Peters commented: "Our view is that business is now starting to cope with the strong pound."

Adjustments to sterling's continued strength could be one factor behind the falling levels of employment seen in the survey, economists said.

Job creation in the services sector slowed down to levels not seen for almost six years, according to the BCC.

The survey showed that there continued to be net job losses in manufacturing.