Page last updated at 13:09 GMT, Tuesday, 13 January 2009

UK economy downturn 'frightening'

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Business leaders have painted a bleak picture of the UK economy, with a survey suggesting the end of 2008 saw a "frightening deterioration".

The British Chambers of Commerce (BCC) said its survey results were "awful" and the worst since it began in 1989.

Elsewhere, a separate report suggested it had been the worst December for UK retail sales in at least 14 years.

On 23 January, official figures are set to confirm the UK is in recession with six months of negative growth.

Margins hit

The British Retail Consortium figures on sales from the High Street and online said that like-for-like sales in December were down 3.3% on a year ago while total sales shrank 1.4%.

This is despite the government cut in value added tax (VAT), which took effect in December.

Many hard-pressed customers couldn't be seduced into spending
Stephen Robertson
Director-general, BRC

This made for the worst December since the survey began in 1995.

Some High Street retailers, including Sainsbury's and Greggs, have been reporting strong Christmas trading - suggesting that the economic picture is not yet entirely bleak.

But food retailers were almost the only sector to show growth, the BRC said, amid what it described as "truly awful numbers".

"Non-food retailers had a torrid December despite a blizzard of promotions and deals, which would have hit margins," the BRC's director general Stephen Robertson said.

"Many hard-pressed customers couldn't be seduced into spending."

Earlier, supermarket giant Tesco reported a 2.5% increase in like-for-like sales in the key Christmas period.

'No positives'

The BCC report, based on a survey of almost 6,000 firms which employ 680,000 people, pointed to plunging domestic demand, falling exports and plummeting confidence in the last three months of 2008.

Quite frankly the last time I saw anything of this magnitude of decline was when I worked in the West Midlands in the early 1980s
David Frost
Director-general,
British Chamber of Commerce

"It is clear that the UK economy is facing a very serious recession, and the downturn is deepening at an alarming pace," said the BCC report.

"The results highlight a frightening deterioration in the UK economic situation."

Its latest survey - which covered the last three months of 2008 - showed "no positive features" it added, with both the manufacturing and service sectors worsening.

Manufacturing, home sales and orders, employment expectations, investment, confidence and cash-flow have all hit record lows.

In the service sector, every key area was at a new low.

BCC director general David Frost called for a national recovery plan to be "rolled out as soon as possible".

"These are truly awful results with the scale and speed of the economic decline happening at an unprecedented rate.

"Quite frankly the last time I saw anything of this magnitude of decline was when I worked in the West Midlands in the early 1980s," he said.

"The sheer scale of this comes as a surprise to many of us."

Printing money

The BCC's chief economist David Kern said that he now expected the UK economy to shrink by up to 2.4% in 2009, rather than the 2.2% he had earlier forecast.

"One must say that unfortunately in terms of GDP, this recession is worse than in the 1990s," he said.

Nissan car factory at Washington
The manufacturing sector is gloomy about its outlook, the survey found

But he added it was not worse than the 1980s, so it was still possible "to avoid a prolonged depression".

Last week, the Bank of England cut the cost of borrowing from 2% to 1.5% - the lowest since the Bank was founded in 1694.

Mr Kern said more rate cuts were likely, but that the authorities would have to go further to avoid a prolonged depression, including printing more money.

"The MPC is running out of conventional bullets," he added.

The suggestion that investment in factories and machinery was at record lows was particularly worrying, said Ross Walker, chief UK economist at Royal Bank of Scotland.

This indicated that private sector firms would see their capacity for recovery hindered when the UK came out of economic crisis, he said.

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