The announcement that the UK economy contracted by 0.2 per cent underlines the trend for companies and consumers to avoid spending wherever possible, business leaders in the West Midlands said yesterday.

Birmingham Chamber of Commerce Group (BCCG) said yesterday's GDP figures for the final quarter of 2011 was further evidence that the economy is stalling,  

BCCG president Michael Ward said consumer demand was falling as a result of wage restraint and inflation and he added. "This has hurt consumption while the eurozone crisis has meant that the UK's key export market has been in a state of turmoil for much of the last year. Many businesses and consumers are retrenching and avoiding spending wherever possible."  

The BCCG quarterly economic survey for the last three months of 2011 indicated businesses within the Greater Birmingham and Solihull Local Enterprise partnership (LEP) were seeing a slowing in export growth with 10 per cent fewer manufacturers reporting that their export sales had increased in Q4 compared with Q1 of 2011.

Mr Ward added: "It is vital that the Bank of England holds interest rates at their historic low of 0.5 per cent for the foreseeable future as any increase would eat into the disposable income consumers have left and would cause interest rates to rise on mortgages and loans.   

"The Monetary Policy Committee must also expand its Quantitative Easing programme £50 billion to £325 billion. This would free up significant amounts of capital that could then be loaned out to businesses looking to expand."  

The British Chambers of Commerce recently announced that, as a result of the eurozone crisis being more serious than previously predicted, they expect  GDP growth will be minimal until mid-2012, and then improve gradually.

Additionally the British Chambers forecast that unemployment will increase to 2.77 million before it shows any sign of abating.