Emaciated service sector questions health of economic growth |
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Sat, 16 Jul 2005 01:35
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The British Chambers of Commerce stated that with the service industry’s miserable performance in the last quarter, the possibilities of economic growth undergoing a grave slump had only soared. According to the BCC's recent research, about 6,000 firms confirmed the service zone cut to the bone, what with dilapidated domestic sales, weakening export orders as well as declining employment expectations.
David Frost, Director General of BCC commented on the rickety service scene saying, “The deterioration is very disturbing, given the critical role of services in sustaining UK output and employment and given the persistent weakness of manufacturing.”
The BCC notified further that its records of domestic sales of companies in the service sector had dwindled to the lowest-ever level after 1998 and there seemed to be no trace of confidence, or profit expectations in the industry. Simon Rubinsohn, economist at Gerrard Securities explained that the crippling effect in the retail and manufacturing sector had trickled down to the services sector, and “the worry is that this is now beginning to spread beyond the high street to other service industries.”
Moreover, the labour market was also waning, as consumer spending had decelerated along with stagnating property prices. Therefore, the monetary policy committee is being looked at for a reduction in the interest rate to prevent the economy from a perilous crash. In Frost’s words, “With the economy slowing, and the business environment becoming more dangerous, the [Bank of England's] monetary policy committee must reduce interest rates quickly to the lowest level consistent with the inflation target.” During a meeting scheduled for next month, it will be expected from the MPC to slash the present interest rate of 4.75%.
Considering the dismal performance of the service sector along with the other sectors, the BCC has trimmed down its predictions for this year’s economic growth to 2.0-2.1% from the erstwhile 2.4%. Meanwhile, Chancellor Brown’s forecast of achieving a lofty growth level of 3-3.5% is most likely to end in the soup.
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