UK growth too weak for sustainable recovery: BCC - Reuters UK

By Jonathan Cable

LONDON | Tue Jul 3, 2012 4:07am BST

LONDON (Reuters) - Britain's economy remains weak but an upturn in exports to countries outside Europe suggests growth could pick up later this year, the British Chambers of Commerce said on Tuesday.

The trade group said its latest economic survey of around 8,000 businesses suggested marginal growth in the second quarter, and falling inflation and a subsequent increase in disposable incomes would improve prospects into 2013.

"The second quarter 2012 results indicate weak and inadequate, but still positive, UK growth ... it is clear that the UK economy faces major challenges," said BCC Chief Economist David Kern.

Economists polled by Reuters last month also expected 0.1 percent quarterly growth.

The country fell back into recession around the turn of the year and a string of weak economic data has pointed to another quarter of contraction between April and June.

Factories cut back on activity in both May and June, a purchasing managers' survey showed on Monday, while a similar poll of firms in the country's dominant service sector due on Wednesday is expected to show only tepid growth.

The BCC predicts economic growth of just 0.1 percent for 2012 and 1.9 percent for 2013.

While domestic demand is weak, the survey found an improvement in exporting activity, particularly to countries outside of battered Europe - Britain's main trading partner.

"While domestic growth continues to bump along the bottom, the silver lining is an increase in firms looking for export opportunities, and in many cases, with countries outside Europe," said John Longworth, director general of the BCC.

The increase in exports will provide some cheer for the government, which is trying to rebalance Britain's economy away from its past reliance on public spending and consumer demand, but the data will also heighten calls for them to change policy and stimulate growth.

The Conservative-led coalition, which has focused on cost-cutting to reduce a record budget deficit, has also introduced measures to encourage banks to lend, though many economists think more direct fiscal stimulus might be needed.

"Growth cannot wait. The government must take an imaginative and brave approach to stimulating the economy and helping businesses thrive," Longworth said.

The Bank is expected to top up the 325 billion pounds of cash it has already pumped into markets with another 50 billion when it meets on Thursday as part of its own efforts to kick-start growth.

Confidence among businesses remains lower than before the recession in 2007 and plans by manufacturers to invest in plant and machinery fell although those of services firms remained unchanged from the previous survey.

Respondents to the survey, who employ around 250,000 people between them, gave a mixed picture of the jobs outlook with the number of service sector firms looking to take on more people rising while the number of factories seeking to expand fell.

(Editing by Ruth Pitchford)