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Sales slowdown 'about to bite' Industry's chiefs braced for cutback n spending.

British industry believes that the long expected economic slowdown will bite from this month after sales peaked at record levels in 1997.

A report from the British Chambers of Commerce revealed yesterday that firms in both manufacturing and service industries doubt they will be able to increase turnover in the first quarter of 1998.

The BCC also found that businesses expect consumers to cut down on spending during the rest of the winter.

While the last three months of 1997 saw a marginal upturn in domestic sales, the BCC report said bosses at top UK companies predict a "cooling" of growth in the next three months.

The survey of more than 7,000 companies' opinions found domestic sales for manufacturers had lifted six per cent to 23 per cent in the last three months - a 12-month high.

Service companies, like banks and shops, said sales climbed steadily, showing significant growth.

But forecasts of growth in turnover for the next period dropped in both sectors.

As a result, service companies said they were also looking to cut back on investment.

Dr Ian Peters, deputy director general of the BCC, said: "With service sector firms having driven growth in the economy for some rime now, it appears the impact of interest rate rises is beginning to take effect.

"While manufacturers have seen some growth at home, expectations in the service sector are that a slowdown is beginning to emerge."

"This survey suggests the economy may now be at a turning point and the Bank of England must take care to apply due weight to the economic expectations of the business community when making future decisions on interest rates." The survey also found that skills shortages were still a concern, with a majority of firms saying it was difficult to recruit new staff.

However, the service sector is expecting to employ fewer people in the next three months, while manufacturers expect staff levels to remain the same.

Elsewhere, Bank of England governor Mr Eddie George said there are now signs that the UK economy is 'about to bite' cooling down, "as it needs to do quite soon and quite quickly" if a pick-up in inflation levels is to be avoided. In a speech to the British-American Chambers of Commerce, Mr George went on to say that while he is aware that British exporters have been "discomforted" by the recent strength of the sterling exchange rate, "the domestic environment remains actually and prospectively relatively benign".

He went on to say the "chilly winds now blowing from Asia" are likely to have a substantial economic aftershock on global economies including the UK "even assuming, as I do, that we are able in fact to contain the immediate financial turmoil".

Mr George said that while it is too soon to have any very clear view about the likely scale or duration of these economic effects, his impression is that, notwithstanding the IMF'S recent downward revisions to its 1998 GDP growth forecasts for G7 countries, "most analysts would still see the risks as being quite heavily on the downside".

Noting that there have been suggestions that a dampening of UK growth as a result of these developments is welcome insofar as it would help to prevent the re-emergence of inflationary pressures, Mr George said this is "true, up to a point".

However, he went on to say that it is "clearly not desirable that the necessary moderation of demand should be narrowly concentrated on those sectors that are exposed to international competition".

Turning to the situation in Asia itself, Mr George said the likely introduction of fiscal measures to stimulate both the financial sector in particular and the economy in general should lead to a "somewhat stronger domestic demand growth, and greater confidence in Japanese financial institutions, that will make a crucial contribution to the stabilisation of the region as a whole".
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Author:Wachman, Richard
Publication:The Birmingham Post (England)
Date:Jan 23, 1998
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