The British Chambers of Commerce has marginally revised down its economic growth forecast for the UK, citing sluggish household consumption and lacklustre business investment over the next couple of years, largely because of Brexit.
The BCC on Monday said that it now sees the economy growing by 1.5 per cent this year, from a previous forecast of 1.6 per cent, and by 1.1 per cent in 2018, from a previous forecast of 1.2 per cent. It revised its outlook for 2019 to 1.3 per cent from 1.4 per cent.
“Despite pockets of resilience and success, and strong results for some UK firms, the bigger picture is one of slow economic growth amid uncertain trading conditions,” said Adam Marshall, director general of the BCC.
“Despite last week’s deal, Brexit uncertainty still lingers over business communities, and is undermining many firms’ investment decisions and confidence. Certainty over the course of Brexit would also help to stabilise markets, and reduce the volatility of sterling, which businesses say is increasing their costs,” he added.
The organisation’s prognosis for next year is now in line with the official forecast from the Office for Budget Responsibility. However, in 2018, the OBR sees growth of 1.4 per cent, which is higher than the BCC predicts.
The BCC also said that it sees inflation remaining elevated in the short term, peaking at 3 per cent in the final quarter of this year, and then moderating slightly as the impact of the post-EU referendum slide in the value of the pound fades.
But it does maintain that inflation will outpace earnings until 2019, eroding real wages and weighing on consumer spending, which is a key driver of UK economic growth.
The BCC said that it expects the next increase in the UK’s official interest rate to be a rise to 0.75 per cent in the final quarter of 2019.
The BCC has been one of the most vocal critics of Brexit in the business community, despite praising recent progress in negotiations, Mr Marshall also warned that “even the best possible Brexit deal won’t be worth the paper it’s written on if the government fails to address the many long-standing, and well-known, barriers to growth here at home”.
“Ever-rising upfront costs, a labour market at capacity, growing pressure on land use and a physical and digital infrastructure in need of investment and expansion all prevent UK firms from reaching their potential,” he said.
“While the recent Budget made some welcome steps in the right direction, concerted and sustained action to fix the fundamentals is needed to encourage business investment and growth,” he added.
Suren Thiru, head of economics at the BCC, said that one of the biggest concerns was the UK’s productivity weakness.
“Despite the downgrades to our growth projections, the risks to our forecast remain on the downside,” he said.
“Should the UK face a disorderly exit from the European Union, the UK’s growth rates may be materially lower over the medium term.”