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Manufacturing and services drive UK economy upwards

BCC quarterly economic survey finds rise in business confidence.

The British economy has improved further in the second-quarter of this year primarily due to surge in manufacturing and services sectors compared to the earlier quarter, according to the British Chambers of Commerce’s (BCC) quarterly economic survey (QES) released today.

However, growth in manufacturing and services sectors remain below pre-recession levels of 2007.

During the quarter, services export deliveries balance reached its highest level (+36 per cent)  while employment balances grew, following a decline  in the first quarter of this year. New orders also grew by three points to +29 per cent.

The survey, which collected data from more than 7,400 businesses, revealed that most key balances improved in the second quarter of this year compared to the same period a year ago.

The survey reported weak cashflow in both the sectors during the quarter. The services sector recorded a five point drop and now sits at +1 per cent. However, for services this remains 20 points below its 1997 peak.

During the quarter, business confidence grew with manufacturing sector confidence increasing by seven points to +51 per cent, while service sector confidence rose six points to +46 per cent. Profitability confidence increased from +33 per cent in first quarter to 39 per cent in second quarter for manufacturing, and from +22 per cent in first quarter to +34 per cent in second quarter for services.

Investment in plant and machinery grew by nine points to +23 per cent, while for services it declined by two points to +7 per cent.

John Longworth, director general of the BCC, said: “It is incredibly encouraging to see export deliveries reach record levels, and the upturn in employment balances is reassuring in spite of the risks at home and abroad.

"However the falls in the service investment balances and the weak cashflow balances in both sectors are a warning that economic growth could be slow, and a reminder that a sustained upturn cannot be taken for granted. For these reasons, business access to finance, and working capital in particular, must be assured.”

David Kern, chief economist of BCC, said: "The improvement in most key balances in our Q2 survey supports our view that the UK upturn is slowly strengthening. The recent revisions to historic GDP data show that previous fears of a double dip were misguided. If recent progress is sustained, we could even see quarterly GDP growth of 0.6 per cent in Q2 2013.

"The remarkable export balances show that the service sector is capable of increasing its trade surplus over time and can work to reduce our overall trade deficit. Developing the export potential of this sector is critical to long-term prosperity."

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.