Page last updated at 14:28 GMT, Tuesday, 7 July 2009 15:28 UK

Worst of the recession 'is over'

Printing company MD, Richard Cockerill: "We've got a lot more confidence"

The worst of the UK's recession is over, according to the British Chambers of Commerce (BCC) business group, but talk of a recovery is premature.

Its report, based on a survey of 5,600 companies, found there had been "welcome progress" in confidence levels between April and June.

But the BCC still expects unemployment to reach 3.2 million by 2010.

However, official data showed that manufacturing output fell 0.5% in May. Analysts had forecast a rise of 0.2%.

The Office for National Statistics (ONS) said the monthly fall was driven by a 2% decline in the paper, printing and publishing industries.

Industrial production, a wider measure which includes energy supply, mining and oil and gas as well as manufacturing, fell 0.6% against forecasts of a rise of 0.2%.

Economists say the surprise contraction now makes it less likely that the economy returned to growth in the second quarter.

Dave Harvey
Dave Harvey, BBC business correspondent in the West of England

Everyone has their own dipsticks for spotting the recovery. Mine is inexplicable optimism on the High Street.

And on my walk to work at the BBC in Bristol there are two new delicate shoots poking through the hard soil of the retail allotment.

Whiteladies Road is pockmarked with boarded up shops, restaurants, estate agents and mortgage brokers. But two down from Woolies, a new restaurant opens.

"They're a negative set of figures and suggest strongly that GDP continued to contract over the second quarter," said Phillip Shaw from Investec.

"They're also a reminder that the lasting recovery can't be taken for granted later in the year and are likely to encourage the MPC to sanction more quantitative easing at its meeting on Thursday."

Signs of recovery?

Also on Tuesday, the National Institute of Economic and Social Research (NIESR) estimated that the economy shrank by 0.4% in the three months ending in June.

This followed a decline of 1.3% in the three months ending in May.

The think tank said it believed the UK economy was "now stagnating rather than continuing to contract at a sharp pace".

NIESR had previously estimated that the UK economy resumed growth in April and May, after a sharp decline of 1.9% in the three months to March.

And the CBI has predicted that the economy will see a return to growth of 0.7% next year.

The government has forecast the economy will grow by 1.25% in 2010.

Nurture confidence

The BCC said that, although its survey had found that manufacturing had seen greater improvement than services, the sector still remained in "a worse condition overall". It also warned that the increase in confidence was fragile.

David Frost, British Chambers of Commerce: "A marked upturn in confidence"

Last week, the ONS sharply revised its GDP data for the UK, saying the economy shrank by 2.4% in the first quarter of 2009, compared with its earlier estimate of a contraction of 1.9%. With these heavy revisions, the BCC said it was far too early to say that recovery is secure.

It added that without continued focus on limiting the impact of the recession, there was still a risk that the economy could "drop off suddenly" and the UK could be heading towards a "W-shaped" recession.

"It is absolutely vital that the improvement in business confidence is nurtured," said BCC director general David Frost.

"Our economy is based on confidence, and wealth-creating businesses need to know they will be given the freedom and flexibility to drive the UK out of recession and into a sustainable recovery."

He added that the proposed increase in National Insurance contributions in 2011 was a "tax on jobs" which should be scrapped.

He also called for banks to continue lending and said that businesses expect the government to sort out "the appalling state of the public finances".

Changes in GDP in UK recessions

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