Fears Over Economic Recovery As Business Spending Slashed

(Guardian) – INVESTMENT BY UK BUSINESSES on new buildings and equipment plunged by a record amount over the past year, casting fresh doubts over the strength of Britain’s recovery from recession.

The Office for National Statistics reported this morning that business investment fell by 5.8% between October and December 2009 compared with the previous three months, worse than City analysts had predicted. The decline means that business investment was 24.1% lower at the end of 2009 than at the start – the worst annual decline since records began in 1967.

The fall was particularly acute in the manufacturing sector, where business investment plunged by 35.3% during 2009.

Howard Archer, economist at IHS Global Insight, said the data was “truly dire”, undermining hopes that UK GDP for the fourth quarter of 2009 could be upgraded tomorrow. Archer warned there was even a danger that the first estimate of 0.1% growth could even be downgraded, which would mean that the UK was still officially in recession.

“Furthermore, the sharp overall and ongoing decline in business investment could threatens to have significant long-term damaging repercussions for the economy’s potential output,” he added.

Business investment makes up more than 10% of overall UK GDP.

David Kern, chief economist at the British Chambers of Commerce (BCC), agreed that the preliminary business investment figures showed “alarming declines”. He said companies had been forced to conserve cash and not spend on new equipment, a decision which would make it harder for British industry to grow in the future.

“In the face of weak demand and acute financial pressures, businesses have had little choice but to slash investment and stocks in order to survive. But, such a situation cannot persist over the long-term without damaging consequences,” Kern warned.

“In order to promote investment, companies need continued support now – and the confidence that a credible plan is in place to mend our public finances as the recovery takes hold,” he added.

… (26/02/2010) – Spectre Of Double-Dip Recession Looms

Britain Posts First January Deficit Since Records Began

(Telegraph) – BRITAIN REPORTED its first budget deficit for January since records began as government spending rose and tax receipts fell sharply.

The Office for National Statistics said today that spending by the Government had exceeded its income by £4.3bn.

It is first time the Government has had to borrow in a January since records began in 1993. Economists had expected a surplus of around £1bn.

The figures reflected the impact of the economic downturn on the UK’s finances as tax revenues slumped while spending grew because of measures such as the jobseeker’s allowance.

It will renew pressure on the Government to set out plans to ease the burden on public finances, with many predicting a future of tax rises and spending cuts.

Andrew Goodwin, senior economic advisor to Ernst & Young Item Club, said: “These are pretty ghastly figures and come as somewhat of a surprise given the smaller overshoots of the past couple of months.

“January usually yields a healthy surplus due to receipts from corporation tax and even in the current climate it is surprising to see the government rack up a deficit.”

The pound fell after the release.

The ONS said spending was £4.4bn higher than in January 2009, while receipts were down £4.2bn.

Government receipts stood at £50.5bn as income tax fell 19pc to £19.4bn compared with January last year.

VAT income grew 16pc year-on-year after the rate returned to 17.5pc at the end of the Government’s temporary move to help the economy.

Spending grew to £49.5bn in the month, with layout on social benefits up 3pc at £14bn in January.

The UK’s net debt hit £848.5bn, which is equivalent to 59.9pc of the country’s annual output – the highest proportion for a January since the 1974 financial year.

David Kern, chief economist at the British Chambers of Commerce, said the worse-than-expected January figures further emphasised the dangers facing Britain’s international credit rating.

“The deficit this year reinforces the need for credible and specific deficit-cutting measures in next month’s Budget,” he said.

“As well as explicitly spelling out its medium-term spending plans, it is now necessary for the Government to announce a freeze in the public sector wage bill, and an immediate review into the cost of public sector pensions. This would persuade the markets, and the rating agencies, that the Government is serious about cutting the unsustainable deficit, and enabling the private sector to drive Britain’s recovery.”

BCC Warns Against Complacency

(Telegraph) – THE WORST OF THE RECESSION IS OVER, according to the British Chambers of Commerce’s (BCC) latest economic survey; but the business body warned that recovery was fragile and cautioned against complacency.

The results of the BCC’s survey of 5,600 businesses, released today, showed progress in the manufacturing and service sectors during the second quarter of the year as well as a marked improvement in confidence.

But business leaders pointed out that, despite improving since the last quarter, almost all critical measures remained negative with manufacturing cashflow sticking at -32 per cent — the lowest since records began.

The BCC also warns that the economy could risk another steep slide unless the government takes steps to sustain recovery.

David Kern, chief economist, said recovery was not guaranteed.

‘Even if we do get a recovery, it will be very shallow and very gradual — more L-shaped than W-shaped,’ said Mr Kern.

… (09/07/2009) – Bank Keeps Interest Rates On Hold