The British Chambers
of Commerce (BCC) has today (Monday) released its latest economic
forecast, upgrading its growth expectations for the UK in 2019 to 1.3%
(from 1.2%).
However, the leading
business group has downgraded its growth forecast for 2020 to 1.0% (from 1.3%)
and to 1.2% (from 1.4%) in 2021.
The leading business
group has slightly upgraded its growth forecast for 2019, driven by the
exceptionally rapid stock-building early in the year. However, the immediate
boost to UK GDP is forecast to come at the cost of more subdued growth in 2020
and 2021 as the unwinding of historically-high inventory levels, coupled with
weaker business investment, weigh on economic activity.
Business investment
is forecast to contract at a faster rate in 2019 and recover more slowly in
2020 than expected in our previous forecast. The continued Brexit impasse,
including the growing possibility of a no-deal exit, together with the high
upfront cost of doing business in the UK and the running down of excess stock,
is expected to suffocate investment activity over the near term.
Trade is projected
to make a negative contribution over the forecast period as exchange rate
volatility, Brexit uncertainty and a subdued global economy, weaken trading
conditions for UK exporters. In contrast, consumer spending is expected to
remain resilient with earnings growth forecast to continue to exceed price
growth over the forecast period and unemployment forecasted to remain low by
historic standards.
The BCC’s latest
forecast is a clear warning sign that the next Prime Minister must set out a
clear roadmap for how the political impasse in Westminster can be broken and an
agreement reached to prevent further slowdown in the economy.
The Chamber Network
is also calling for a strong and clear strategy on the domestic agenda,
including urging the next government to use the forthcoming Comprehensive
Spending Review to affirm its commitment to delivering major infrastructure
projects, such as HS2, that underpin economic growth.
Commenting on the
forecast, Suren Thiru, Head of Economics at the British Chambers of Commerce,
said: “The revisions to our forecast suggest that the UK economy is likely to
remain on a disappointingly subdued growth path for some time to come.
“It is increasingly
likely that the temporary boost from historically high stockpiling in Q1, which
has marginally improved the growth outlook for this year, will be surpassed
over the medium-term by the negative impact from the running down of these inventories.
The downward pressure on business activity and investment intentions from the
unwinding of stocks is likely to be exacerbated somewhat by increasing cost
pressures and Brexit uncertainty, slowing overall economic growth across the
forecast period.
“The deteriorating
outlook for business investment is a key concern as it limits the UK’s
productivity potential and long-term growth prospects. On the upside, household
spending, a key driver of UK economic output, is expected to be supported by
relatively low unemployment and positive real wage growth.
“A messy and
disorderly exit from the EU remains the main downside risk to the UK’s economic
outlook as the disruption caused would increase the likelihood of the UK’s weak
growth trajectory translating into a more pronounced deterioration in economic
conditions.”
Adam Marshall,
Director General of the British Chambers of Commerce, added that while
politicians are distracted, businesses are left with no choice but to try and
prepare for the unwanted possibility of leaving the European Union on 31st October without a deal and transition
period.
"Businesses are
putting resources into contingency plans, such as stockpiling, rather than
investing in ventures that would positively contribute to long-term economic
growth," he said. "This is simply not sustainable. Business
communities expect the next Prime Minister to quickly find a sensible and
pragmatic way forward to avoid a messy and disorderly Brexit.
“The UK’s low-growth
trajectory makes clear that we can’t afford for Westminster to keep turning a
blind eye to the domestic agenda. The upcoming Comprehensive Spending Review is
an opportunity for the next government to affirm its commitment to support economic
growth, including investment in the skills and training system and
infrastructure projects, such as high-speed rail and the city regeneration
schemes linked to them. Businesses will also be expecting action to alleviate
the heavy burden of upfront costs, which stunt growth.”
Key points in the
forecast:
- UK GDP growth forecast for
2019 is upgraded from 1.2% to 1.3% and downgraded from 1.3% to 1.0% in
2020 and from 1.4% to 1.2% in 2021
- Quarter-on-quarter GDP growth
is forecast to slow to 0.0% in Q2 2019, down from 0.5% growth in Q1
- Forecast for business
investment growth been downgraded to -1.3% for 2019 (from -1.0%) and to
0.4% for 2020 (from 0.6%), before growth of 1.1% in 2021
- BCC expects export growth of
1.6%, 1.6% and 1.7%, compared to import growth of 4.3%, 1.8% and 2.2%.
- Forecast for growth in
household consumption been upgraded to 1.4% for 2019 (from 1.3%), followed
by growth of 1.4% in 2020 and 1.5% in 2021
- Average earnings growth is
expected to outstrip inflation over the period, with growth of 3.0%, 2.9%
and 3.0% respectively, compared with inflation of 2.1% in 2019 and 2020,
and 2.0% on 2021
- UK official interest rates
are expected to remain at 0.75% throughout 2019, before rising to 1.0% in
2020
- In terms of sectors, growth
in services has been upgraded to 1.4% (from 1.1%) in 2019 but downgraded
to 1.2% (from 1.3%) and to 1.4% (from 1.7%). Growth in manufacturing has
also been upgraded for 2019 to 1.0% (from 0.5%) in 2019 but downgraded to
0.5% (from 0.7%) in 2020 and 0.7% (from 0.8%) in 2021.Construction sector
growth is expected of 1.0%, 0.9% and 1.0% respectively.
