Britain’s fragile service sector prompts concerns

Economic indicators point to strong manufacturing but a weak service sector, according to the British Chambers of Commerce (BCC), raising concerns about the sustainability of the recovery in the face of spending cuts.

The latest Quarterly Economic Survey (QES) suggests the British economy continued to grow between 0.4% and 0.5% in the fourth quarter of last year, albeit at a slower pace than in the second and third quarters. Combining over 5,600 responses from businesses across Britain, the QES “paints a mixed picture of the economy”.

So far, economic growth has largely been led by Britain’s improved manufacturing and export sector. Manufacturing will help to rebalance the economy, but the BCC warns that persistent problems in other eurozone countries will cause serious difficulties for British exporters.

Nevertheless, the QES suggests manufacturers are still confident of increasing their expected turnover and profitability this year. Turnover confidence among British businesses remained near to a three-year high, moving down one percentage point to 48%. Profitability confidence increased seven percentage points, to 30%, the highest level since the fourth quarter of 2007. (article continues below)

Both measures for the service sector are up, though they suggest firms in the sector are not as confident as earlier in 2010. The service sector’s turnover confidence balance rose 12 percentage points to 26%. Profitability confidence increased 13 percentage points to 17%.

The service sector, which remains the country’s most important sector, is “fragile” and its weakness is “worrying”, the BCC says. Unless reversed it says this could have adverse consequences, particularly for jobs.