UK economy contraction: reactions from the business world

Ian McCafferty, chief economic adviser of the CBI:

"The magnitude of this preliminary estimate is a surprise, but much of the contraction appears to be the result of the very poor weather, which pulled output down sharply; construction, transport, retailing and leisure activities have all been affected.

"Although the manufacturing sector continued to grow strongly, this was not enough to make up for the declines in these other sectors, which account for nearly a third of the economy. The milder weather so far in early 2011 could mean that some of this lost activity will be made up in coming months, as happened last winter.

"It was always expected that underlying levels of activity would be sluggish through the winter and into the first half of 2011; export activity is starting to strengthen and business investment is picking up, but spending by both government and consumers is expected to weaken.

"On these data it is far too early to conclude that the UK economy faces a serious double dip, and it will be some months before the true picture of its underlying performance becomes clear."

Thomas Coles, managing director of MSM Software:

"The contraction in the economy is no great surprise: many small businesses have experienced a turbulent second half in 2010 and in my experience, are hugely pessimistic for 2011.

"The biggest concern for small businesses in relation to this announcement is that confidence may drop, which will ultimately result in another downward spiral. This is indicative of the predicted 'double dip' where more businesses will go bust, because of cash flow issues.

"The government needs to instil less regulation and lower business taxes to stimulate rather than constrain growth. In particular employment regulations aren't getting any better, it will be interesting to see whether the same axe is taken to them as Lord Young has taken to the H&S regulations."

The Forum of Private Business:

The FPB's statement today cited 'slow movement on policies to improve business finance' and a lack of policy 'tackling the £24 billion in late payments owed to small firms across the UK' as the 'real reasons' the economy faces a double-dip recession.

It added: "In addition, the Forum believes tax rises such as increased duty on fuel, which is set to go up again in April by 1p, and VAT are hitting both businesses and consumers in the pocket."

Senior policy adviser Alex Jackman said: "Following the mini economic revival we have experienced recently, these figures might be seen as surprising, but small businesses have warned for some time that we are far from being out of the woods. Clearly, the harsh winter weather, costing the economy an estimated £230 million per day at its worst, has been one factor but still not enough has been done to remove the shackles created by tax, red tape and the continued lack of affordable funding preventing SMEs from growing, creating jobs lost in the public sector and driving real, sustained economic recovery.

"Unless that changes, and changes quickly, there remains a very real threat of a 'double dip' recession and that could spell disaster."

Dr Eamonn Butler, director of the Adam Smith Institute (a free-market think tank):

"I saw it coming: a re-run of that stagflation we had in the 1970s, with growth stuttering while retail prices were at 5%, and rising. And its cause is just the same: years of huge government spending and borrowing - and then trying to print or borrow your way out of the inevitable collapse. After a huge party you get a huge hangover, and a hair of the dog just draws out the recovery. Sometime, you have to feel the pain. The pain is the cure. And our economic hangover is going to continue just as long as we keep printing money and keeping interest rates too low.

"After a crunch like 2008 things should be a lot worse. But business failures are at a 30-year low. Bad businesses are being kept afloat by quantitative easing, cheap credit and a rising government debt. A "dash for growth" based on printing money and cheap credit won't cure our headache any more than it did in the 1970s. It just distorts price signals and shores up the bad investments of the boom years. We need sound money, sensible interest rates, and balanced budgets - not more hair-of-the-dog expansionary policies. Roll up that book of Keynes, Mr Osborne: we'll not be needing it these 10 years."

Glynn Bellamy, partner at KPMG:

"Behind the headline GDP data there is a continued resurgence in the manufacturing sector which is no longer primarily UK focused but operates on a global stage. Whilst the UK focused service and construction sectors have been impacted by adverse weather, the manufacturing sector has reported an upward trend in GDP - reflecting its linkage to the wider global growth trends. This highlights the continued need for the UK to promote a stable and competitive fiscal environment that continues to support investment in the manufacturing base."

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