‘Chronic’ underinvestment hampering progress in manufacturing, says BCC chief

British Chambers of Commerce director general John Longworth.

British Chambers of Commerce director general John Longworth.

Fresh signs are emerging of “two tier” growth in the UK economy, with firms within the services sector peforming markedly more strongly than those in manufacturing, according to a new study.

The British Chambers of Commerce (BCC) survey for the second quarter of 2015, shows that confidence, investment, employment and cashflow all increased within the services sector, in contrast with a continued slowdown in manufacturing.

With the services sector representing around three quarters of the UK economy, BCC said the overall findings still pointed towards continued economic growth during the second quarter, but with “many headwinds”, particularly for manufacturing.

BCC director general John Longworth said: “These figures give us the best, most current insight into business experience and sentiment.

“Overall, they indicate that we will see continued growth in the economy, thanks mainly to the strength of the services sector. But the difference in results also raises the prospect of the UK experiencing two-tier growth, with modest expansion in services and markedly slower growth in manufacturing and goods.

“The manufacturing sector has battled against structural problems for years but, even in that context, the scale of the slowdown being experienced by our manufacturers is a surprise and a concern. Part of the reason might be down to the strength of sterling against the euro and the dollar, but currency fluctuations are not the only issues at stake.”

Mr Longworth said three structural problems were hurting manufacturers, including “chronic” underinvestment in businesses, reflecting a lack of long-term incentive as well as lack of capital, underinvestment in infrastructure and insufficient focus on helping more firms to succeed in new export markets.

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“The Chancellor’s Budget, the forthcoming spending review and the remainder of this Parliament should focus on tackling these issues for the long-term,” he said.

David Kern, BCC chief economist, added: “It is clear that the UK recovery remains unbalanced and growth is still too reliant on consumer spending.

“While a healthy consumer sector is vital, much greater efforts are needed to increase the economic contributions of investment and exports – which, in turn, will boost our productivity and help tackle the unsustainable external deficit.”

BCC questioned nearly 7,500 member companies for the survey.