UK economy sluggish in Q2 as firms battle inflationary squeeze

● British Chambers of Commerce calls for action as key services sector struggles

The UK economy barely progressed in the second quarter with growth for many firms “static at best”, as the dominant services sector saw activity stutter, according to survey results published today.

The quarterly economic survey by the British Chambers of Commerce (BCC), which it says is the largest private-sector business survey study in the UK and covers more than 7,700 firms, found that inflation’s sustained squeeze on household spending dragged economic growth by hampering the performance of retailers and hotels.

The balance of services-sector firms seeing a rise in UK sales dropped to +19 in the second quarter, down from +22 for the first three months of the year. Businesses witnessing a rise in UK orders also slipped to +15 from +19 across the industry, which represents the lion’s share of the British economy.

However, manufacturing exports and sales achieved a solid expansion in the three months to June, as sterling’s weakness boosted demand by making British goods cheaper for overseas buyers. Firms in this sector saw domestic sales remain at +20, with orders marginally lower at +15 from 16.

Adam Marshall, director general of the BCC, said the results of the survey, which mirrors “the outlook of companies in all sectors and locations of the UK, indicate that for many businesses growth is static at best, and at worst, beginning to slow”.

He called for the economy “to be put back at the heart of the agenda” and said government must tackle key issues such as labour shortages, and physical and digital infrastructure issues.

“Any talk of higher business taxes to pay for politically-motivated spending must be quashed swiftly, to avoid undermining business confidence further,” he added, also highlighting “getting as much clarity on the Brexit transition as possible” as crucial.

Suren Thiru, head of economics at the BCC, said rising inflation would be a “key challenge” for the UK economy this year, with consumers and companies both facing higher prices.

The survey follows recent data from the Office for National Statistics showing that the UK economy grew by 0.2 per cent in the first quarter, down from 0.7 per cent in the final three months of 2016.

Scotland managed to stave off fears of slipping into recession after growth soared to 0.8 per cent in the period.