BUSINESS may not be booming – but it is getting better.

The UK economy saw further growth in the second quarter of 2010.

This builds on Q1's economic improvement.

These encouraging findings are reported in the latest Economic Survey from business group, the British Chambers of Commerce (BCC).

Key indicators on business conditions, such as employment expectations, investment plans, export orders, and domestic sales – in both the manufacturing and service sectors – made gains in Q2 reported the survey.

However, despite the encouraging results, the BCC still highlighted an underlying weaknesses in the economy, warning that these could tip the economy back into recession.

The business group highlighted sluggish growth in the service sector as a serious concern, and more specifically, the high cost of raw materials, putting pressure on prices.

Key highlights from the report included:

• Manufacturing home sales surged by 29 points in Q2, to plus 30%; a level not seen since the last quarter of 2007.
• Manufacturing export sales increased by 11 points, to plus 31%; its highest level since Q3 2006 and an indication that exporters are benefiting from a more competitive exchange rate.
• Employment in manufacturing improved, rising 35 points to plus 19.
• The pressure to raise prices surged 22 points in Q2, to plus 30%, the highest figure since Q3 2008.
• The service sector's confidence measures weakened.
• Manufacturing's cash flow improved by 10 points, to plus 1%. Services cash flow improved 6 points, but remained negative at minus 3%.

David Frost, director general of the BCC, commented: "On the whole these results are positive, especially in manufacturing, and they should offer encouragement that the UK's recovery remains on the right track."

Mr Frost continued: "We still have concerns about sluggish growth in the service sector, which emphasises why the government must continue to promote the best possible business environment, in order to help companies invest and grow. Furthermore, with around 80% of manufacturers reporting that they are under pressure to increase prices, there is potentially a big issue bubbling under the surface."

David Kern, chief economist at the BCC, added: "Despite an improvement in manufacturing, the sector still faces serious risks. Given the sector's poor long-term historical record, it is much too early to conclude that we are now seeing a sustainable manufacturing upturn. The service sector, which accounts for the bulk of GDP in the UK, is not recovering at an adequate pace and this heightens the threat of an economic setback."

The economic data was collected by the BCC from over 5,600 businesses across every region of the country.