By Claire West

The British Chambers of Commerce’s latest Quarterly Economic Survey (QES), released today (Tuesday) suggests that while the UK economy has returned to positive growth, the disappointing results highlight the fragility of the recovery.

The Q1 survey, combining 6,000 responses from businesses across the UK, is likely to have been negatively affected by the weather-related disruptions in December; however, this aside, the overall picture is still worrying.

While balances for the manufacturing sector remain positive and exports are still strong, there has been a worsening across all the key balances, pointing to a difficult economic environment in Q1. The service sector shows mixed results. Though many balances have risen in the last quarter, the improvement is slight and still inadequate.
Commenting on the results, David Frost, Director General of the BCC, said:

“The results of the Quarterly Economic Survey show our economy faces a difficult year and that the recovery will be choppy. Exporting activity remains strong, but there have been sharp declines in confidence, and cashflow is still a real concern for businesses.

“While the Government has listened to calls to help the private sector create growth, there is more to be done in giving businesses greater confidence, and encouraging them to export, invest and create more jobs. As the public sector cuts start to bite, the Government must get the detail right on the measures announced in the Budget to generate economic growth by helping businesses thrive.”
David Kern, Chief Economist at the BCC, added:
"The Q1 QES results highlight the fragility of the UK economy in the early months of 2011, following the increase in VAT and the first wave of the Government’s tough spending cuts. The results are mediocre and disappointing, particularly for manufacturing.
“Since disruptions resulting from the severe weather conditions in December have probably artificially depressed some of the balances in the current survey, we believe the economy has returned to positive growth in Q1 2011. However the upturn in Q1 is likely to have been only slightly larger than the decline recorded in Q4 2010. This means that the level of output this quarter was only marginally higher than in Q3 2010.
"Benefiting from a competitive exchange rate, manufacturing still has the potential to drive the UK recovery. But the international background has become riskier for Britain’s exporters, while the domestic austerity plan will intensify pressures on businesses and consumers. In addition, the mediocre performance of the service sector will hinder the number of new jobs created this year. Given the underlying uncertainties, the MPC must avoid premature interest rate increases that may worsen risks of a serious setback."