Escape from further UK recession still possible

A recent report has suggested that another credit crunch is not an inevitable outcome for the UK, despite the increasingly unstable outlook on the continent.

The opinion comes from the British Chambers of Commerce which have just released the results of their latest three monthly survey.

More than 6000 businesses participated in the poll and whilst many felt that a recession could still be avoided, a large number agreed that the British economy had been 'significantly weakened'.

The director general of the BCC, John Longworth, said that a fresh recession was not 'a foregone conclusion' despite domestic demand plummeting to its lowest levels seen in over two years.

According to statistics from the body, domestic manufacturing orders have slumped and are currently loitering at a level not previously seen since the autumn of 2009. But even though the number of current and forward orders fell in the last quarter of 2011, the BCC said the results are not indicative of a recession.

But despite the results remaining above the worst seen in the last recession, Mr Longworth said that urgent action needed to be taken, pointing out that all progress made in the past two years has now been wiped out. He added that the ongoing financial problems in the eurozone were contributing to 'a lack of business confidence' as well as 'short term stagnation'.

The BCC predicted that in the next six months, Britain will see at least one quarter where there is a contraction in the economy, not sufficient to define as a recession, but significant enough to increase the financial pressures across the country.

The freeze in the manufacturing sector means that businesses will put a halt on recruitment, as well as attempt to pare back their spending in order to reflect the reduced profits from lower demand for goods.

The ongoing saga across the Channel undoubtedly has made its effect felt back in the UK and the German Chancellor, Angela Merkel, made it clear that the problems with Greece are far from resolved when she spoke on Monday.

Mrs Merkel admitted that Greece was a 'special case,' but insisted that in order for the debt-ridden country to receive its second tranche of aid, progress must be seen on its current package. Holders of Greek bonds must approve a debt restructuring, which would see them lose around 50% of their original investment. Whilst this may be unpopular, without this agreement, Mrs Merkel has suggested no further money will be forthcoming from Europe.

Without a second rescue deal jointly funded by the EU and the IMF, Greece have little option than to allow a default to occur, a situation all are keen to avoid because of the repercussions.

During her joint address with French President, Nicolas Sarkozy, Mrs Merkel said that France should be applauded for its proactive stance, after Sarkozy announced that a financial transaction tax could be introduced next month. The UK government has publicly stated its opposition to the tax and has said it will only be willing to adopt the change if it is made truly global and not just localised.

Britain has also opted out of the new budget rules which will tie 26 out of the 27 EU members to targets which will see stiff penalties incurred if they are missed. The UK has said that it will not hand over control for its deficit and finances to the EU, particularly as it is not part of the single currency.

Most experts are agreed that Europe will be extremely lucky to avoid dipping into a further recession this year, despite the relative strength of the German economy. Angela Merkel is due to meet the head of the IMF, Christine Lagarde, in the near future, to discuss the role of the rescue fund in debt stricken countries and also to reach an agreement about the best way to help those who reach a crisis.