Creeping recession

Manufacturing in Britain has been limping along for some time now, but economic growth generally has been held up by the services sector. Not any more. The British Chameber of Commerce have just released their quarterly economic survey:

The performance of Britain's service sector worsened sharply in the second quarter, while manufacturing was mixed with exports deteriorating, a survey reported today.

This is the second quarter in which services growth has deteriorated. Whilst a certain amount of handwaving from New Labour can dismiss this as simply the effects of the economic cycle, more fundamental problems are now coming to the fore:

The survey reveals that capital spending plans are at their lowest level since 2003 for both manufacturing and services companies. In addition, employment expectations fell sharply in both sectors. A weakening labour market is likely to put further downward pressure on consumer spending.

The Office for National Statistics (ONS) reported yesterday that the number of people out of work and claiming unemployment benefit rose for the fifth month running in June.

The ONS said the claimant count of unemployment increased by 8,800 to 864,900 last month, prompting analysts to predict that the UK is facing its first serious unemployment problem since the early 1990s.

The news on capital spending plans that should be a particular concern: even after picking up from a trough in 2003, investment expenditure in Britain has remained low by historical standards, and compared internationally. For an economy with an already very weak capital structure, with British workers using some 50% less capital each than their counterparts in the US (PDF), New Labour's failure to improve investment - despite all the promises of "Enterprise Britain" and business-friendly politics - could prove critical.