Osborne Called On to Do More to Help Weak U.K. Recovery: Economy

British businesses are keeping up pressure on Chancellor of the Exchequer George Osborne to do more to boost a “weak” recovery as the government pursues the biggest fiscal squeeze since World War II.

“The U.K. economy is still facing huge challenges and the recovery is much too slow,” British Chambers of Commerce Director General John Longworth said in a report today. “It has the potential to recover, but to achieve that the government has to set businesses free to grow.”

Manufacturing and construction surveys this week indicate the U.K. economy returned to growth in the first quarter and a report tomorrow will probably show services continued to expand. While Osborne’s budget statement last month included corporation tax cuts to support business, consumer confidence remains low after disposable income fell the most since 1977 last year and unemployment rose.

Gross domestic product probably rose 0.3 percent in the first quarter after a 0.3 percent drop in the last three months of 2011, the London-based BCC said. It forecast full-year growth of 0.6 percent, less than the 0.8 percent predicted by the government’s fiscal watchdog.

The pound rose 0.1 percent against the dollar today and traded at $1.6038 as of 10:35 a.m. in London. It’s risen about 5 percent since falling to an 18-month low on Jan. 13.

Tax Cut

Osborne announced a 20 billion-pound ($32 billion) National Loan Guarantee Scheme last month to boost lending to small and medium sized companies. He also announced that the corporation- tax rate will fall to 24 percent from 26 percent from this month, double the cut previously planned. Reductions in each of the next two years will bring it to 22 percent in 2014 instead of 23 percent.

His Conservative-led coalition government still intends to narrow a record budget deficit as indebted countries in Europe struggle to tame their finances and regain investor confidence. Other measures he announced included a freeze on pensioners’ tax allowances and an increase in stamp duty on the most expensive homes.

“There was no plan for jobs and growth from this out-of- touch government” and “we urgently need practical measures to help businesses and get our economy moving again,” Owen Smith, a Labour party spokesman on economic issues, said in a statement. “Our economy should be doing more than just recovering the output lost at the end of last year.”

‘Modest Improvement’

In a quarterly survey today, the BCC said a gauge of domestic orders at manufacturers rose to 6 in the three months through March from minus 13 in the previous quarter. For services, the domestic orders index increased to 7 from minus 9. On export orders, the measures for both industries jumped to the highest in a year.

Separate reports from Markit Economics Ltd. this week showed manufacturing grew at the fastest pace in 10 months in March and construction expanded the quickest in 21 months.

It’s a “welcome but modest improvement,” BCC Chief Economist David Kern said, adding that economic growth probably won’t return to a “more normal” pace until next year. He also said the government must make its credit plan more effective and the Bank of England should do more to ensure its bond-buying program “encourages increased lending to viable” small and medium sized companies.

The Bank of England will probably maintain its bond- purchase target at 325 billion pounds and keep its benchmark interest rate at a record low of 0.5 percent this week, according to economists in two Bloomberg News surveys. The central bank expanded the target by 50 billion pounds in February and those purchases are due to be completed early next month.

Japan Deflation

A Bank of Japan (8301) report today showed the country’s liquidity supply dropped in March for the first time in more than three years, fueling complaints from politicians that the central bank should be doing more to end deflation. The monetary base fell 0.2 percent from a year earlier after climbing 11.3 percent the previous month.

Elsewhere, Australia’s central bank kept its benchmark interest rate at 4.25 percent today, and signaled it may resume cutting borrowing costs as soon as next month if weaker-than- expected growth slows inflation. A Chinese index for non- manufacturing industries rose in March, according to a report from the statistics bureau and the logistics federation. Thai inflation accelerated for the first time in five months in March on rising oil prices, while the Philippines reported its first budget surplus in six months.

U.S. Manufacturing

In the U.S., orders at factories increased 1.5 percent in February after a 1 percent decline in January, according to the median estimate of economists surveyed by Bloomberg News before the report today.

Euro-area producer-price inflation slowed for a fifth month in February as waning consumer demand forces companies to cut costs. Factory-gate prices in the 17-nation region rose 3.6 percent from a year earlier, down from 3.8 percent the previous month, the European Union’s statistics office in Luxembourg said. Annual energy-cost gains accelerated to 9.3 percent from 9.2 percent in January.

Rising oil and food costs may mean that U.K. inflation slows less quickly than expected this year, the BCC said. While consumer-price growth eased to 3.4 percent in February, that’s still above the Bank of England’s 2 percent target. Kern said the group is also “still concerned that the unresolved problems in the euro zone may trigger new upheavals later this year.”

“There must be a greater focus on policies to support growth that will enable businesses to create jobs, invest and export,” Longworth said. “As the public sector’s share of economic activity shrinks over the next few years, forceful measures are needed.”

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.