Triple whammy points to economic slowdown

Bankruptcies are up, job prospects worsen and manufacturing heads for recession

FRESH SIGNS that the British economy's slowdown is well under way emerged today from three separate reports showing bankruptcies on the rise, job prospects on the wane and manufacturing heading for recession.

The further evidence of economic slowdown is unlikely to be enough to rule out the threat of a further rise in interest rates, however, when the Monetary Policy Committee meets next week.

The latest quarterly survey of employment prospects from Manpower, the UK's biggest employment agency, suggests that jobs growth is stabilising. The survey of more than 2,200 employers reveals that jobs prospects are very mixed across a range of industries, and the overall balance of 20 per cent planning to take on more staff in the next three months is unchanged on a year earlier for the first time in two years.

Dun & Bradstreet reports that more than 10,000 businesses failed in April- June, a 9.4-per-cent increase on the first quarter and 4 per cent higher than a year earlier.

To cap the gloom, forecasting group Cambridge Econometrics this morning publishes a new prediction of recession in manufacturing. It expects manufacturing output to fall by 0.5 per cent this year before recovering modestly next year as a result of better growth in Continental European markets.

The tightness of the jobs market, which is translating into higher earnings growth, has been one of the main concerns of the Bank of England's Monetary Policy Committee. Official figures since the shock interest rate rise earlier this month showed a further acceleration in pay, but these only run up to April.

Survey evidence suggesting that the jobs market is coming off the boil will therefore be welcome, as it points to some easing of the Bank's dilemma.

The MPC holds its July meeting next week, and - after being caught on the hop in June - analysts are braced for the worst. The vote for June's quarter-point rise to 7.5 per cent is thought to have been overwhelming, and most of the evidence since then has pointed to continuing inflationary pressures alongside signs of slowing growth.

The Manpower survey indicates that employment in manufacturing will fall slightly, with buoyant sectors such as electronics, the car industry and food and drink not hiring enough to offset declines elsewhere. In services, employment prospects appear static with some losers such as retailing balancing gainers like telecommunications.

Lilian Bennett of Manpower said: "The first signs of a downturn in job prospects are becoming evident from these figures."

The Dun & Bradstreet report notes that the number of failures during the first half of 1998 was lower than the first half of 1997, but adds: "The latest figures since April suggest that the tide of business casualties may be beginning to turn."

Analyst Philip Mellor said a rapid rise in the number of bankruptcies among smaller businesses was particularly worrying. They were up from 4,670 in the first quarter to 5,860 in the second.

Cambridge Econometrics holds back from forecasting a full-blown recession for the economy, putting GDP growth this year at 2 per cent and next year at 1.5 per cent. Even so these figures, similar to the predictions last week from the Organisation for Economic Co-operation and Development, mark a sharp slowdown from growth of 3.3 per cent in 1997.

The predictions foresee expansion in industries such as telecommunications and computing, and also construction, riding to the rescue of the rest of the economy. Businesses in retailing and the leisure industries are likely to be affected by a slowdown in computer spending.

However, the forecast that the economy as a whole will enjoy a relatively soft landing depends on the assumption that the pound weakens gradually from its present rate of just over DM3. If it does not, the impact on exports and manufacturing could spell recession for the whole economy. If it falls faster, inflation would climb above its target without further interest rate increases.