RTTNews - The worst phase of the recession is over in the British economy, but it is far too early to say that the recovery is secure, the British Chambers of Commerce said Tuesday, citing results of its latest quarterly economic survey.

The business lobby warned that without continued focus on limiting the impact of recession, the economy could drop-off suddenly and will strengthen the argument that the British economy is heading towards a W-shaped recession.

Last week, revised figures from the Office for National Statistics showed that U.K.'s gross domestic product or GDP fell 2.4% in the first quarter from the fourth quarter of 2008, more than the initial estimate of a 1.9% drop.

The BCC said the GDP probably fell between 0.1% and 0.4% in the second quarter and it is expected to post no growth until the end of this year.

The pace of decline in the U.K. economy is clearly moderating. The worst phase of the recession is over, but serious downward pressures persist across all sectors and regions, said David Kern, Chief Economist at the BCC. Recovery is now possible but it is not yet secure.

The second quarter survey, which was conducted among 5,600 companies showed that manufacturing recorded stronger improvements than services. The BCC said the most encouraging feature of the second quarter results was a marked strengthening in confidence in both sectors following sharp declines over the previous two quarters. However, the business lobby added that the recent improvement in sentiment can only be sustained if the economy continues to stabilize and the recession ends.

With cash flow, capacity utilization, and price pressures remaining weak, it is important that the short-term policy stance continues to be expansionary, the BCC said. Meanwhile, Kern said further corrective measures are still needed to support the economy and quantitative easing should be pursued aggressively.

In order to bring the economy out of recession, the Bank of England had taken several measures including reductions in its benchmark interest rate to a level close to zero. In addition, the bank initiated a GBP 125 billion asset purchase scheme. The central bank is expected to expand the scheme to GBP 150 billion this month or next.

BCC Director General, David Frost said the survey results are sending British Prime Minister Gordon Brown and Chancellor Alistair Darling a strong message from the business community that it is absolutely vital that the improvement in business confidence is nurtured.

Our economy is based on confidence, and wealth-creating businesses need to know they will be given the freedom and flexibility to drive the UK out of recession and into a sustainable recovery, Frost said.

Moreover, the survey found employment expectations in manufacturing and services sectors improving in the second quarter. That said, the BCC continues to expect unemployment to reach 3.2 million, about 10% of the workforce, by mid-2010.

Frost said the British government needs to think long and hard about its policies on taxation and red tape, which threaten to stifle growth and employment. According to the BCC, the planned increase in National Insurance contributions is nothing more than a tax on jobs and it should be abandoned immediately.

Signs of improvement in the economy cannot be an excuse for the government to start increasing business tax as a remedy for the ill health of the nation's finances. Risking any fragile gains would be a huge mistake, Frost said.

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