31 May 2013

BCC Economic Forecast: UK growth upgraded, but risks to economy remain

In its Q2 economic forecast, the British Chambers of Commerce warns that while the upgraded figures are encouraging, growth is still too weak and the economy is facing many challenges, both domestically and internationally.

BCC upgrades its GDP growth forecast from 0.6 per cent to 0.9 per cent in 2013, from 1.7 per cent to 1.9 per cent in 2014, and from 2.2 per cent to 2.4 per cent in 2015. The service sector is likely to outperform other sectors and record full-year growth of 1.8 per cent in 2013, 2.3 per cent in 2014, and 2.8 per cent in 2015. Unemployment expected to reach 2.650 million in Q3 2014 – 50,000 higher than we predicted in March. Public sector borrowing is forecast at £117.5 billion in 2013/14, £2.5 billion lower than the OBR predicted in March 2013.

John Longworth, Director General of the British Chambers of Commerce, said: “The upward revision in our growth forecasts is encouraging. We have constantly said that earlier fears of a triple-dip recession were misguided and risked damaging confidence unnecessarily. Upward revisions of official figures may even show there was no double dip recession. There is no doubt that the improved outlook is a tribute to the unswerving determination shown by our members in previous quarters, when there was excessive pessimism over the economy. Unfortunately, this does not change the fact that economic growth is still too weak, and the pace of recovery will remain unduly slow for a while yet. We are still a far cry from getting the economy fully back on track. The UK is, and will for some time, be performing below its potential and we can do so much better. But the government must step up its efforts to create the right conditions for an environment that supports enterprise, as this will help more businesses to create jobs, invest, export and ultimately, grow.“

“The Spending Review is a prime opportunity for the Chancellor to reinforce his commitment to a business-driven recovery. The economy only stands a chance at improving if the government shifts priorities towards capital investment and measures that will give firms the tools they need to grow. There is plenty of scope to cut current spending in order to accommodate this, and long-term decisions will be necessary to secure a bright future for Britain. The Treasury and the Bank of England can do more to provide guarantees that would encourage private investment in infrastructure and other capital projects. It is also important to see more direct support to boost exports, rather than relying on the more indirect vagaries of exchange rates.”

David Kern, BCC Chief Economist, said: “The new forecast signals a modest improvement in prospects, with slightly stronger growth and lower inflation than we previously thought, and with borrowing a little lower than the OBR predicted in March. But the UK economy is still under considerable pressure. Reducing the structural deficit is proving a longer and more painful task than initially expected. However, the outlook will gradually get better, partly because of back data revisions. GDP and consumer spending may regain their pre-recession levels in the second half of 2014, rather than in 2015 as previously thought."

“Not only will growth remain modest and below its long-term trend until 2015, but it will have to continue to rely heavily on services and consumer spending. Household consumption is likely to grow at a stronger rate than GDP in 2013 and 2014, as falling inflation eases the pressure on real incomes. In output terms, the service sector will remain the main driver of Britain’s recovery. The two main risks facing our forecast are worsening eurozone prospects and an upturn in UK inflation, which would squeeze real incomes and could harm growth. Any attempts to boost exports by encouraging a weaker pound (such as extending QE) could prove counterproductive as the damage caused by imported inflation is likely to outweigh the small benefits to exporters. Efforts to rebalance the economy towards exports should be supported by measures such as greater funding for trade promotion and connecting businesses to overseas customers.”

Full press release

© BCC - British Chambers of Commerce