The survey, comprising 6,700 responses from businesses across the UK, shows while many balances are still in positive territory, indicating growth, this is weaker than in previous quarters.
Figures for the last three months showed a fall in the balance of manufacturers expanding their workforce, and in services there was only a marginal increase. Firms in both sectors do not seem to be much more optimistic about future recruitment. In manufacturing the employment expectations balance was down five points to +10%, and in services down six points to +6%.
Business confidence among manufacturers fell in the last quarter. The balance measuring manufacturers' confidence in turnover fell by seven points (to +33%), and in profitability the balance was down six points to 16%.
In the service sector, the turnover confidence balance fell six points to 24%, and profitability confidence stayed unchanged, at +10%, still a disappointingly weak level. In both sectors, the level of confidence in turnover and profitability is inadequate.
While both service sector and manufacturing businesses intend to invest slightly more in training, investment in plant machinery fell in both sectors.
The results for the third point to a deterioration in the economic situation, with concerning signs of stagnation in the domestic economy. Cashflow remains a real concern for businesses, indicating they are under financial pressures.
Disappointing balances for exports, and for investment in plant and machinery, suggest that the much-needed rebalancing of the UK economy is not yet occurring.
The domestic balances in the Q3 survey signal minimal growth or stagnation, with declines in both manufacturing and services.
For both manufacturing and service sectors export balances worsened in Q3. Exporting activity among manufacturers is stronger than in services, and also outperforms domestic activity. The export figures, which have fallen to weak levels last seen in 2009, show that the rebalancing of the economy towards exports is not happening. Businesses are still facing real difficulties in managing cashflow (the movement of cash in and out of the business). Both balances are in negative territory, with a fall in manufacturing (down seven points to -8%), and no change in services, at -6%.
Despite balances falling since the last quarter, businesses' intentions to raise prices are still relatively high (likely due to rising raw material costs). The balance of manufacturing firms reporting pressure to increase prices fell seven points, to +31%, and in services fell five points, to +22%.
John Longworth, director general of the BCC, said: "The results of our latest survey are concerning, but not entirely surprising. Many of the balances are in positive territory, but they are not as strong as we'd like to see. The survey shows the real risks facing the economy and the need for the government to act now in putting business growth at the heart of all its policies. For example, cashflow remains a real concern for businesses, indicating they are under financial pressures. Many businesses are faced with unfavourable payment terms and a lack of access to capital. "The pace of the UK recovery will remain slow. We can avoid a recession, but this relies on the government making some tough policy choices. While it is imperative that the government perseveres with its deficit-cutting plan, there must be a significant reallocation of priorities within the overall spending envelope. We need a much greater focus on those policies that will help businesses expand, take on more staff, export and invest. "Businesses need continuous reassurance that there is a plan for fiscal stability and a clear road map which will steer us towards a strong recovery. Government must recognize that business is good for Britain, and put in place measures to bolster confidence and support those companies that have the potential to grow. That includes a commitment to a Plan A+ for growth, with alternative paths at the ready in case of further shocks from foreign shores."
David Kern, BCC chief economist, added: "The Q3 QES results point to a deterioration in the economic situation, with concerning signs of stagnation in the domestic economy. The disappointing Q3 balances for exports, and for investment in plant and machinery, suggest that the much-needed rebalancing of the UK economy is not yet occurring. Negative cashflow balances indicate that firms are facing real financial pressures. "The forward-looking home order balances moved into negative territory, for both manufacturing and services, pointing to risks of recession. Although recession can be avoided, on the basis of these results our growth forecasts issued early in September will likely be revised downwards for both 2011 and 2012. "Given the worsening international situation and the acute problems facing the Eurozone, there is a clear need for the MPC and the government to make every effort to avert risks of recession. The recent increase in the QE programme to £275 billion is welcomed, but more radical measures are needed. These should be mainly concentrated on purchasing securitised SME loans and other private sector assets. On its part, the government must reprioritise its spending plans to promote growth and wealth creation."