More doom and gloom as BCC cuts growth forecast

Ordinarily, economists tend to shy away from the ‘r’ word until there’s absolutely no question about it – but business organisation the British Chambers of Commerce is clearly feeling brazen. Its new survey has not only downgraded the UK’s prospects for economic growth during 2011 to 1.1% - its third downgrade this year, and a far cry from the original 1.9% it had anticipated. But it’s also suggested that we might be about to run headlong into another recession.

The BCC said that among the 6,700 businesses it surveyed, there were definite ‘signs of stagnation’, with exports, confidence, cashflows and investment in machinery (aka manufacturing growth) all falling. And it warned that while there’s likely to be ‘weak’ growth ahead, in the longer term, there are ‘risks of recession’. Eeek.

The BCC’s isn’t the only survey out there today which suggests there’s much doom and gloom to come: Investec, for example, has found that over the last few months, businesses have delayed or cancelled spending plans worth £4.7bn because they’re worried about the economy. Given that the Government is counting on businesses to invest their way out of trouble, that’s not terribly encouraging. Nor, for that matter, are Deloitte findings, which suggest that half of businesses are now planning to cut spending over the next year, compared with just 13% who want to increase it.

The other worry is that, to avoid a situation like last time where businesses found that they couldn’t get their hands on cash when they needed it, they’ll hoard it instead – which, as every good scholar of Keynes will tell you, prevents that money from helping businesses grow, ergo creating jobs. The bad news is that businesses are apparently sitting on £65bn of cash – twice the level before the recession.

So what’s the Government going to do about it? The BCC says it ‘must reprioritise its spending plans to promote growth and wealth creation’ – but the trouble is, that’s a very tall order when business confidence is plummeting and businesses are thus feverishly cutting their spending. ‘Fixing their roofs while the sun’s shining’, as George Osborne was fond of saying when he was in opposition. Although in this case, the rain is already falling and there may be a hurricane in the offing…

Of course, the UK isn’t an isolated economy, so whatever the Government chooses to do won’t make much of a difference if the whole of Europe is aflame. Fingers crossed, then, that Slovakia (a country clearly relishing in its first-ever bit of global economic power) votes in favour of measures which will increase the size and scope of the European Financial Stability Facility (aka the European bailout fund). Otherwise, George Osborne might as well don a fez and pick up a pair of cymbals, because chances are he’ll have all the power of a trained chimp to prevent the onset of a very unpleasant few months…