Tower Bridge, London Credit: Vic Thomasson/City of London

The UK is on the brink of leaving recession according to the results from the Quarter 3 2009 British Chambers of Commerce Economic Survey (QES) but the recovery is not very evident so far.

Data from over 5,500 companies shows good progress in both the manufacturing and service sectors, with most key indicators improving in the last quarter. The results support the view that the decline in economic activity is coming to an end, though much of the rebound is from historic lows.

Highlights from the Q3 QES include:

• Confidence strengthened across the board in Q3, particularly in manufacturing, where turnover confidence climbed 34 points, to +36%, the strongest figure since Q1 2008.
   
• While still negative, employment in services improved to its highest level since Q3 2008. The sector’s employment expectations improved by 14 points, to +5%, the strongest level since Q2 2008.
   
• The cashflow indicator remains negative and is still weak by historical standards. However, manufacturing cashflow improved by 22 points, to -10%, while in services it improved 9 points, to -8%.
   
• Domestic orders and sales strengthened significantly in the last quarter, particularly in manufacturing. However, they remain negative, making it difficult to argue that the UK has already emerged from recession.

Commenting on the results, BCC Director General, David Frost, said: “The most encouraging feature of these results is that confidence has strengthened dramatically in both manufacturing and services. In the face of huge challenges, British businesses are showing resilience.

“It is vital that the government now demonstrates a clear determination to support wealth-creating firms. Unless business confidence is nurtured and allowed to drive the economy out of recession, the country’s recovery will be stunted, and we will face a risk of a double-dip recession.

“Despite the toughest spending climate in decades, the government must protect infrastructure investment and avoid placing additional tax burdens on business. A moratorium on new employment laws is needed, and crucially, the planned increase in National Insurance contributions in 2011 must be scrapped.

“The private sector cannot be seen as the quick cash remedy for the poor state of the nation’s finances. The deficit will have to be brought down by making tough choices on spending cuts in the public sector, including a freeze on pay and recruitment across the board.”

David Kern, Chief Economist at the BCC, added: “The Q3 results support our assessment that the UK economy is on the brink of leaving recession. However, the improvement is not sufficiently strong to allow us to conclude without doubt that GDP has already returned to positive growth.

“The economy is still frail. With a number of critical balances still negative in both sectors, the emerging recovery is vulnerable to a setback. Measures are needed to ensure that serious risks of a relapse can be overcome.

“Persistent weakness in bank lending to businesses poses clear dangers, and the Monetary Policy Committee must act to address this.

“Britain’s credit rating depends critically on the adoption of a credible multi-year plan for improving our public finances - without damaging wealth-creating businesses."

Meanwhile, British retailers have warned that consumer sentiment remains fragile despite the best sales growth since April last month.

The British Retail Consortium (BRC) posted  a 2.8% rise in like-for-like sales - - but this was against comparisons with plunging sales a year earlier at the height of the financial crisis. Retailers also benefited from much better weather last month in contrast to the wet September seen last year, the BRC added.

Director general Stephen Robertson said there was "some room for optimism" in the results but warned against "getting carried away."

Food sales growth slowed further, largely reflecting lower food price inflation. Clothing and footwear picked up and homewares and furniture sales also rose above last September's very weak levels, helped by some improvement in consumer confidence and the housing market.

Non-food non-store sales (internet, mail-order and phone sales) in September were 11.9% higher than a year ago compared with 7.9% in August. The faster growth rate in September than in August was in line with the pick-up in store sales. Postal strikes are now a serious concern for online retailers.