BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific Arabic Spanish Russian Chinese Welsh

 You are in: Business
Front Page 
UK Politics 
Market Data 
Your Money 
Business Basics 
Talking Point 
In Depth 

Commonwealth Games 2002

BBC Sport

BBC Weather

Monday, 3 December, 2001, 20:48 GMT
Gloom deepens in UK economy
People at a cafe/restaurant
Restaurants have seen business levels fall
The slowdown in both the UK manufacturing and service sectors is getting worse, two surveys have showed.

More interest rate cuts may be needed to prevent the UK from falling into recession, industrialists argued, though economists do not expect a rate cut until early next year.

This survey makes it clear that for most business people their battle is now with deflation

Roger Bootle, economic adviser to Deloitte & Touche
Manufacturing activity fell sharply in November, with output contracting for the ninth month in a row and employment falling at its fastest rate for three years, the Chartered Institute of Purchasing and Supply (CIPS) falling to its lowest level since January 1999.

Stocks of purchased goods, which have fallen for almost two years, are now falling faster than they have done since the early 1990s, the CIPS report said.

Meanwhile, the latest quarterly survey of the service sector by the Confederation of British Industry (CBI) and Deloitte & Touche found business volumes, confidence, profitability and prices all falling.

Rate cut

"You would dismiss this survey at your peril," said Roger Bootle, economic adviser to Deloitte & Touche, who argued that the Bank of England's Monetary Policy Committee (MPC) should think about cutting interest rates further.

"While some members of the MPC still think that their battle is with inflation, this survey makes it clear that for most business people their battle is now with deflation."

Some comfort came from further data - released today by the British retail Consortium - indicating high street sales are still growing, although at a slightly slower pace than before.

Cheap credit, thanks to seven interest rate cuts to a 40-year low of 4% that the Bank of England has made since the beginning of this year, has helped keep people spending.

But hardly any economists predict another cwhen the MPC meets on Wednesday.

"I think it's too much to expect [a cut] this week, but certainly this sort of data strengthens the argument for going again early next year," Halifax economist Adam Chester.

Bleak outlook

Firms in the service sector account for around two-thirds of the British economy and until a few months ago it appeared to have avoided the worst of the economic downturn.

Growth in services had helped offset the recession currently being experienced in the UK's manufacturing sector, which accounts for about a fifth of the UK economy.

But the CBI's findings show problems are now spreading across the economy.

The survey found the volume of business dropping sharply across all service areas, by looking at the difference between the number of firms that are saying volumes are up and those that are seeing a fall.

In consumer services the percentage balance was minus 59%, compared to minus 20% in the previous survey.

In business and professional services the balance was minus14%, compared to plus 3% last time.

Prices, profits and confidence also fell over the three month period.

"The events of September 11 compounded an already deteriorating situation, especially for those firms reliant on the consumer," said Sudhir Junankar of the CBI.

"Confidence has taken a hard knock with hotels, bars and restaurants feeling the worse of this."

"Looking forward consumer firms are slightly less negative about business activity. For business and professional services, however, the pressure is set to intensify into the New Year.

The BBC's Jenny Scott
"News they are beginning to suffer is worrying"
Engineering Employers' Federation's Stephen Radley
"Conditions are very difficult"
See also:

03 Dec 01 | Business
The UK's service sector blues
05 Nov 01 | Business
Slowdown spreads to service sector
03 Oct 01 | Business
Attack hits European service sector
03 Oct 01 | Business
UK shoppers shrug off gloom
Internet links:

The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.

E-mail this story to a friend

Links to more Business stories