First alarm bells for UK economy as rate hike looms

Jessica Morris, Special to

Britain's economy slowed in the third quarter of this year, according to a survey by the British Chambers of Commerce (BCC), which could raise concerns for the U.K.'s future economic growth rate.

The business lobby group's Quarterly Economic Survey, contributed to by nearly 8,000 businesses, showed that manufacturing and export balances had fallen in the third quarter.

Christopher Furlong | Getty Images

"The strong upsurge in U.K. manufacturing at the start of the year appears to have run its course." John Longworth, Director General of the BCC said in a statement. "We may be hearing the first alarm bell for the U.K. economy, but this not need be the case."

Two manufacturing measures – domestic sales and domestic orders – fell steeply during the quarter. However, in the previous quarter, three manufacturing measures had posted all-time highs. For exports, all balances – which includes manufacturing export sales and manufacturing service sales -- fell in the third quarter.

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"U.K. growth cannot rely permanently on consumer spending, and on unsustainable current account and budget deficits," said David Kern, Chief Economist at the BCC. "Unless exports and investment play a bigger role in growth, the recovery will stall."

Interest rates

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Concerns over the U.K.'s economic recovery will throw attention on the Bank of England, particularly the question of when it will hike historically low interest rates. In September Bank of England Governor Mark Carney said in a speech that a rate rise was 'getting closer'.

"Concerns over the strength of the pound are also high and rising," Longworth said. "Together with a worsening outlook for the euro zone, these factors reinforce the case against an early interest rate rise."

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Possible recovery

The BCC survey comes against other surveys and data which have been largely indicative of an improving British economy.

The U.K. economy grew more than previously thought in the second quarter of 2014, according to revised data released by the Office of National Statistics. Crucially, it showed that the economy surpassed its pre-crisis peak in the third quarter of 2013, better than initially thought.

And in June, Standard & Poor's rating agency upgraded its outlook on the U.K.'s triple-A credit rating from negative to stable. It cited anticipation that the country's economic recovery would continue to broaden, buoyed by public finances.