LONDON — The U.K. economy will stagnate at best in the first half of 2012, as businesses plan to spend less in the coming months and consumers continue to hunt for a bargain amid ongoing tight credit availability, the Government’s austerity measures and a euro-zone crisis that still shows no clear sign of being resolved, survey data show Tuesday.
Three separate surveys show that business confidence remains weak, while consumers are parting with their earnings only when they can find a bargain–or a bank willing to lend to them at an affordable rate.
The British Chambers of Commerce’s quarterly economic survey reports that in the final quarter of 2011 growth across the manufacturing and services sectors was minimal and, with muted plans for investment in the next three months due to concerns over incoming business and profitability, the best likely outcome for the economy in the first quarter of the new year is stagnation.
“A new recession is not a forgone conclusion,” said John Longworth, Director General of the BCC. “However, action is needed urgently to tackle short-term stagnation and a lack of business confidence, damaged by the ongoing euro-zone crisis.”
Business confidence fell in both the manufacturing and services sectors, while investment plans and employment outlooks for early 2012 also declined. Services firms have been the most pessimistic about profit margin since the second quarter of 2009.
The BCC said access to credit worsened–a sign that wholesale lending remains under pressure as the debt crisis encourages banks across the euro zone to remain risk averse and keep their cheapest borrowing rates for only the most credit worthy and charging higher rates to borrowers deemed a bigger risk.
The U.K. economy plunged into recession at the end of 2008. And, while it has now been growing since late 2009, the recovery is slow, hindered by the coalition government’s strict austerity measures along with the ongoing euro zone debt crisis.
Both these factors are impacting not only business plans, but also U.K. consumers” spending and confidence.
The Royal Institution of Chartered Surveyors Tuesday reported that while property transaction levels held up in December–due to an increase in the number of new properties for sale–house prices declined again.
A balance of -16 surveyors reported house prices fell in December, but, while that compared with -17 in November, it was the smallest fall since June 2010.
The survey was mixed and noted there has been an increase in reports of strict lending criteria leaving the cash rich the most able to benefit from the increase in properties being advertised for sale.
“While its encouraging that sales activity held up relatively well towards the end of the year, continuing problems with the economy and the ongoing instability in the euro zone seem to be weighing heavily on the U.K. housing market and expectations for the coming months are fairly subdued,” said Ian Perry, RICS housing spokesperson.
Christmas retail sales data from the British Retail Consortium, also published Tuesday, provided some relief to the bleak outlook.
Total retail sales in the U.K. rose 4.1% in December compared with a year ago, while like-for-like sales–which doesn’t include new stores–rose 2.2% over the same period.
The majority of the increase came from food store sales, with non-food store sales being more promotion led, the survey showed.
“A better-than-hoped-for December closed a relentlessly tough year for retailers, but these figures hinged on a dazzling last pre-Christmas week and were boosted by some major one-off factors,” said Stephen Robertson, the BRC’s director General. “The comparison is with severe snow disruption a year ago.”
The survey shows that deep discounting led the late run of selling, so while sales volumes were strong, sales value data and firms’ all-important profit margins could show a different picture.
Online non-food sales were particularly buoyant in December, rising 18.5% on the year compared with +18% in 2010, resulting in the busiest online Christmas to-date.
-By Ilona Billington, Dow Jones Newswires; +44 20 7842 9452; ilona.billington@dowjones.com
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