Businesses wilt under oil, rates and red tape

Confidence across British business is wilting under the impact of higher interest rates, record oil prices and a series of new regulations which are adding to costs,a leading industry group warned yesterday.

Releasing its latest quarterly survey of nearly 6,000 firms across the country, the British Chambers of Commerce said the worsening of business conditions meant the Bank of England should refrain from raising interest rates again in the near future.

The BCC survey is the latest in a long line of news suggesting the economy, which was growing rapidly in the first half of the year, is going through a "softer patch", as Bank governor Mervyn King described it this week.

As the survey was released, world oil prices set fresh records with US light crude futures rising $1.11 a barrel to $54.75 and London Brent touching $50.90, up 85 cents, after figures showing a fall in weekly stocks of heating oil ahead of the heavy winter demand season spooked the markets.

Most of the measures in the survey of central issues such as sales, orders and employment fell back in the third quarter from the second, but most of them remained above their long-term average, pointing to a slowdown in the economy rather than a slump.

The measures of confidence about profit and turnover fell sharply in both the manufacturing and services sectors, a development BCC director-general David Frost called "disturbing".

George Buckley, an economist at Deutsche Bank in London, said the survey indicated that the four-and-a-half year high in corporate profitability seen in the second quarter of the year would not be sustained in the second half, particularly because of rising commodity prices.

Mr Frost said higher commodity prices were hitting companies in Britain because intense competition meant they were unable to pass on the rise in costs to their customers. "Also, we have higher interest rates which are starting to hit domestic demand and we are seeing a slowdown in major export markets like China."

BCC economic adviser David Kern said that the survey suggested that, while the manufacturing sector was fragile, it was still growing and not contracting as official data have shown. "It may be that the official data are exaggerating the decline but manufacturing does seem unable to sustain a recovery for any significant period of time," he said.

BCC member firms were also complaining about a range of recent employment regulations such as the working time directive and new disability laws which were adding to firms' costs.

Separately, the labour market flashed renewed warning signals about wage growth as the Engineering Employers' Federation reported that pay deals showed an average rise of 2.8% in the third quarter of the year, the highest since April 2001. On Wednesday, official data showed underlying average earnings growth at a two-year high of 4.3%.