'Worse to come' for UK economy

BCC: Manufacturing needs "intensive care"

UK manufacturing is in a "critical condition" and its problems are spreading to the service sector, a new survey has suggested.

All the indicators point to the fact there is worse to come

David Lennan, British Chambers of Commerce

The latest quarterly survey from British Chambers of Commerce (BCC) also says that prospects are poorer for the next three months.

"Manufacturing needs some intensive care, and while the Bank of England's recent cuts in interest rates offered the right kind of medicine, it may not yet be enough to bring the sector back to health," said the BCC's director general David Lennan.

"These are tough and uncertain times for the UK and global economy and all the indicators point to the fact there is worse to come."

Most of the responses to the survey came prior to the terrorist attacks in the US

Slowdown spreads

The Bank of England has already cut UK interest rates six times this year as it tries to stimulate the economy.

The UK base rate is now at 4.5% - its lowest level since 1964.

The BCC says consumer spending needs to stay strong

But the BCC's report suggests that a turnaround could still be someway off.

Manufacturing export sales dropped sharply in the third quarter according to the survey.

Sales fell 17 points on its scale, down to minus 16. The measure is worked out by subtracting the percentage of companies reporting a fall in sales from those reporting a rise.

It also found that manufacturing companies expect more losses before the end of the year.

The BCC says the slowdown in manufacturing is "denting" the service sector, with growth in both sales and orders being trimmed over the past three months.

Confidence among firms in both sectors has also fallen.

Confidence the key

Speaking on BBC Breakfast News Mr Lennan said it was vital to keep consumer confidence high to prevent the economy from more problems.

"What we need here is a huge confidence boosting situation to keep consumer spending high, to keep investment high in businesses and that in turn will lead to better cash flows which is one of the big problems for business at the moment."

Mr Lennan said the problems facing the economy are set to continue into next year.

"There's no sign of improvement at the moment... we haven't yet seen the total impact from the September 11th disaster, that's still to come through to the economy and that will drift through into the next quarter."

"We've got the Christmas period coming up obviously when consumer spending is generally high but I think manufacturing and consumer confidence will start to wane after that."