Britain’s businesses experienced a slowdown in economic expansion in the first three months of 2015, with both manufacturers and services hit, according to the latest quarterly survey by the British Chambers of Commerce.
After a strong reading in the final quarter of 2014, the BCC’s health check of 7,500 companies showed that growth of domestic sales and exports slackened across the UK this year, raising doubts about the underlying strength of the economy.
The net balance of manufacturers reporting increased domestic orders fell from +38% in the last three months of 2014, to +27%. In the services sector, a net +28% of companies reported growing domestic orders, down from +33% in the previous quarter. Investment intentions and hiring also grew at a slower pace.
John Longworth, the BCC’s director general, said the findings were “a salutary reminder that the UK still faces obstacles on the path to sustainable, long-term growth”.
David Kern, its chief economist, said the responses “still point to solid economic growth continuing in 2015”. But he added that the recovery has so far been too reliant on consumer spending.
“While a healthy consumer sector is vital for the economy’s wellbeing, much greater efforts are needed to increase the contributions of exports and capital investment,” said Kern.
Fresh evidence of the robust health of the consumer sector came in separate news on Wednesday from the Society of Motor Manufacturers and Traders, which showed that sales of cars were up 6% year-on-year in March, to 492,774 – a 15-year high.
“This extends the car sector’s robust performance so far in 2015 following a stellar year in 2014,” said Howard Archer, chief economist at the consultancy IHS Global Insight.
But the caution expressed by the BCC chimed with the Bank of England’s quarterly credit conditions survey, which was published on Wednesday. It showed what the Bank called a significant slowing in mortgage demand at the start of 2015, the third quarter of decline in a row.
“Some lenders attributed the reduction in secured lending demand over recent quarters to a combination of changes in regulatory policy; concerns about housing affordability; and uncertainty about the outlook for the housing market,” it said.
Simon Wells, UK economist at HSBC, said the weakness of mortgage demand – together with zero inflation – would give the Bank’s monetary policy committee more reason to leave interest rates on hold at their record low of 0.5%.
“If housing demand is slumping in an environment of falling mortgage rates, the MPC may worry about what would happen if rates were rising.”
