(MENAFN- Khaleej Times)Services continue to drive economic growth as sector strengthens in Q2
London — Britain is at risk of unsustainable “two- tier” growth as services continue to shoulder the economic recovery the British Chambers of Commerce said.
While the service sector strengthened in the the second quarter all key manufacturing balances fell and most are now lower than their pre-recession levels according to a survey with almost 7500 responses published on Tuesday.
“The UK recovery remains unbalanced and growth is still too reliant on consumer spending” said David Kern chief economist at the BCC. “While a healthy consumer sector is vital much greater efforts are needed to increase the economic contributions of investment and exports — which in turn will boost our productivity and help tackle the unsustainable external deficit.”
The strength of sterling a lack of capital underinvestment in infrastructure and insufficient focus on helping businesses succeed in new overseas markets are all hurting UK manufacturers the BCC said.
The survey underlines the task facing Chancellor of the Exchequer George Osborne as he prepares to announce his summer Budget on Wednesday. Osborne has pledged to twin cutting the fiscal deficit with a drisve to rebalance the economy away from London and the southeast the centerpiece of which is a “Northern Powerhouse” plan to regenerate cities such as Manchester.
The UK’s statistics office will publish manufacturing data for May on Tuesday which is forecast to show factory production rose 0.1 per cent from the previous month. While output has risen over the past two years it remains about five per cent below its peak before the crisis in 2008.
“The chancellor’s budget the forthcoming spending review and the remainder of this Parliament should focus on tackling these issues for the long term” said BCC Director General John Longworth. “If we are to secure long-term sustainable diversified growth the government must tackle these structural problems which act as a brake on our economy.”
The BCC said keeping interest rates low was necessary but not sufficient to guarantee growth. BoE policymakers are watching developments in the labour market keenly as they judge when to raise interest rates from their record low levels.
The BCC survey showed employment growth slowed in manufacturing but picked up slightly in services businesses.
There was no sign that pay settlements were picking up at a faster pace although official data last month showed British workers’ pay grew at the fastest rate in nearly four years in the three months to April.
The Markit/CIPS monthly purchasing managers’ indexes have also pointed to a divergence between solid growth in the services sector and a wilting upturn among manufacturers.
The BCC survey was conducted between May 25 and June 15 and was based on responses from 7482 firms.
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