By Daniel Hunter

The British Chambers of Commerce’s (BCC) new Quarterly Economic Survey (QES) released today (Tuesday) shows that economic growth remains too weak. While the results for Q2 2012 suggest that businesses are growing, the pace is sluggish and inadequate for a sustainable recovery.

The new survey, comprising responses from 7,805 businesses, shows that while many of the balances are in positive territory suggesting growth, they are still below levels seen before the recession in 2007.

However, the survey also shows that there has been a surprisingly good improvement in exporting activity, suggesting that businesses are looking to exporting as a source of growth.

Commenting on the results, John Longworth, BCC’s Director General, urged the government to take a bold and imaginative approach to boosting growth. He recommended measures including the creation of a state-backed business bank, and investment in infrastructure as critical to get the economy growing.

“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," he said.

"Economic growth should be the government’s main priority. As the eurozone crisis rumbles on, businesses are feeling the effects, and so growth is still weak.

"Growth cannot wait. The government must take an imaginative and brave approach to stimulating the economy and helping businesses thrive. Headline grabbing u-turns on fuel duty are not enough to get the economy back on track. There must be a relentless determination to deliver Whitehall policies on the ground.

“The creation of a business bank, for example, would ensure that new and growing companies can access the finance they need to invest in new products and services, export to new markets, and take on more staff. Other measures such as renewed infrastructure investment could help insulate the UK from some of the risks in the eurozone.

"Creating robust rail, air, maritime, energy and digital networks will rely on new creative ways of attracting private finance. These projects could be privately funded or kick-started by the public sector, with pension funds and sovereign wealth funds able to purchase the assets when the projects are completed.”

The survey results showed the following:

Domestic orders are weak

Balances measuring domestic activity have shown little net overall change, and while they are in positive territory suggesting growth, domestic activity is not yet back to levels seen before the recession in 2007.

The home deliveries balance for manufacturing fell three points to +9%, and in services remained the same as Q1 at +10%. The balance of manufacturing firms reporting an increase in forward-looking domestic orders rose two points to +8%, but in services fell two points to +5%.

Exporting activity has increased

The survey reported a further rise in exporting activity among both service sector and manufacturing firms.

Balances measuring exporting activity for the last three months (export deliveries) among manufacturers rose seven points to +31%, and among service sector firms rose eight points to +24%.

The balance of both manufacturing and service sector firms reporting increases in forward-looking export orders increased. Among manufacturers, the balance was up four points to +24%, and in the service sector up seven points to +19% - a level last seen in Q1 2007.

Mixed picture on employment

The figures measuring whether firms’ have or are likely to take on new staff show a mixed picture.

Asked whether they had taken on staff in the last few months, the balance of manufacturing firms hiring remained the same as last quarter at 16%, but the balance of service sector firms that had taken on staff rose six points to 10%.

The balance of manufacturing firms looking to increase headcount in the next few months fell two points to +13%, but for service sector firms rose one point to +12%.

Business confidence still lower than pre-recession levels

Confidence among businesses remains lower than before the recession in 2007. In manufacturing, the balances measuring confidence in turnover and profitability rose, but in services, both balances remain unchanged on the last quarter.

Figures measuring firms’ intentions to invest either in training or plant & machinery are mixed. Intentions to invest in training increased marginally (by one point) among manufacturers, but remained unchanged for service sector firms.

Plans by manufacturers to invest in plant and machinery fell by six points to +11%, but by service sector firms remained unchanged on the last quarter at 5%.

Fewer firms are looking to raise prices, but concerns over exchange rates and inflation have increased

The survey showed welcome news that the balance of firms under pressure to increase prices has fallen to levels last seen in 2009/2010, due in part to a fall in raw material prices.

Yet inflation is still a big worry for many businesses - 37% of all firms reported it as a concern. Compared to Q1, the number of manufacturers concerned with exchange rates rose sharply from 38% to 52%, reflecting concerns around the impact of the eurozone crisis.

"In total, the Q2 2012 results indicate weak and inadequate, but still positive, UK growth. While disappointing, they raise questions over the accuracy of the ONS assessment that we are in technical recession," David Kern, BCC Chief Economist, said.

"In the BCC's recent economic forecast we envisaged nil growth in Q2, and this survey points towards a small positive figure. With the Diamond Jubilee reducing the numbers of days worked in Q2, and early estimates showing renewed falls in the erratic construction sector, it is possible that official figures for Q2 2012 may show negative UK GDP growth for a third quarter in a row. There are still unresolved questions about the ONS estimate, but regardless of that it is clear that the UK economy faces major challenges, and growth is inadequate.

“Overcoming the obstacles precluding the return of our economy to normal growth will be difficult and will take time. UK businesses and consumers must realistically plan for a period of relatively low growth in the next few years, as fiscal austerity restores stability to our public finances and the eurozone’s problems create a challenging environment for our exports. But prospects will improve later in the year and in 2013, as falling inflation improves consumers’ disposable incomes, and our exporters persevere with efforts to diversify their sales into faster growing markets outside Europe."

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