Page last updated at 16:07 GMT, Wednesday, 2 July 2008 17:07 UK

Business mood turns to pessimism

By Hugh Pym
Economics editor, BBC News

It has been observed that a week is a long time in politics. You could say the same about the economy.

A house being constructed
There has been disappointing news on house building and mortgages

Talk of a sustained slowdown has been circulating for a while, but the last few days have seen a shift in mood from caution to pessimism in many sections of the business world.

Monday saw publication of Bank of England personal lending figures, which were even bleaker than expected.

Mortgage approvals plunged by an astonishing 28% in May and were 64% lower than a year earlier.

Fears of a continued and prolonged fall in house prices were heightened and the scale and speed of the slowdown have surprised even the housing market bears.

The newspaper world had nothing to lighten the mood with Trinity Mirror reporting a "marked decline" in advertising revenue in the months of May and June. Blame for this was laid firmly at the door of the "uncertain outlook for the UK economy".

Rising prices

Tuesday brought grim news from manufacturing. A survey of purchasing managers (CIPS) revealed that output had fallen at its sharpest rate in nearly a decade.

Window of a Marks & Spencer store
There has also been disappointing news from retailers

There was a double whammy with the revelation of significant inflationary pressures in the shape of price increases at the factory gates.

Manufacturing has been seen as one potential bright spot for the economy as exporters benefited from the weaker pound. It was not looking quite so bright by Tuesday evening.

Wednesday brought the shock profits warning and news of a sharp drop in sales from the high street giant Marks & Spencer.

Sir Stuart Rose, the chairman, was quick to point the finger at the general consumer downturn. It is convenient for him to do so as there may well be M&S specific problems, but few in the retail trade will disagree with his analysis that troubled times will last both this year and next.

Sir Alan Sugar

The only slight difference of emphasis came from Sir Alan Sugar as he bowed out formally from Amstrad (having sold the business to BSkyB).

He told BBC Radio's The World at One that it might be three or four years, rather than two, before consumer markets returned to normal.

There was no respite from the dire mood in the housebuilding industry. Taylor Wimpey told the Stock Exchange that it had not been able to finalise a cash-raising exercise with shareholders and that it might be in breach of banking covenants next year. It is to cut 900 jobs and close 13 regional offices.

Some economists are saying that the chances of a recession in the UK are now 50:50.

This week's news suggests that the pace of economic growth is slowing rapidly with a significant gear change in May.

So far the evidence is anecdotal, but the preliminary estimate of growth in the second quarter will be out soon.

If it is negative and stays that way after further revisions then the first stage of a technical recession will be in place.

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