The British Chambers
of Commerce has today (Monday) released its latest economic forecast,
downgrading growth expectations for the UK in 2019 to 1.2% (from 1.3%) and to
0.8% (from 1.0%) for 2020. Our GDP growth forecast of 1.2% remains unchanged
for 2021.
While the leading
business group expects that the UK economy will avoid a technical recession and
return to modest growth in the third quarter, downgrades to its GDP growth
forecast for 2019 and 2020 reflect a weaker outlook for investment, trade and
productivity amid a continued lack of clarity over the outcome of Brexit and
deteriorating global economic conditions.
Business investment
is now forecast to decline by 1.5% this year and by 0.1% in 2020, which
together with the decline of 0.4% in 2018, would be the longest period of
sustained full-year declines in business investment for 17 years. Relentless
Brexit uncertainty and the diversion of resources by many businesses to guard
against the chaos of a messy and disorderly Brexit, are expected to limit
investment intentions over the forecast period.
UK productivity is
projected to be more subdued than in our previous outlook and implies that by
the end of 2020, the UK economy will have experienced its weakest decade of
average annual productivity growth on record. Anaemic business investment,
together with low unemployment, is expected to keep a lid on productivity, with
firms expected to rely more on hoarding labour than investing in new technology
given the heightened political and economic uncertainty.
The UK’s net trade
position is forecast to weaken over the period as companies face the combined
headwinds of relentless uncertainty on the UK’s future relationship with
Europe, weakening growth in key international markets and mounting global trade
tensions.
The persistently
listless growth forecast reflects the impact of a slowing global economy and
increasing trade tensions, but is also a stark reminder of the impact of the
political turmoil and lingering unwanted prospect of no-deal exit – the
economic consequences of which would be extensive. The BCC is therefore calling
on government to do everything in its power to come to a negotiated solution
with the EU and to take urgent steps to incentivise investment and boost
business confidence.
Commenting on the
forecast, Suren Thiru, Head of Economics at the British Chambers of Commerce,
said: “Our latest outlook indicates that the UK economy is set to stumble down
an ever more sluggish growth path over the near term, unless decisive action is
taken.
“The prolonged
nature of the Brexit uncertainty, including the still real risk of a no-deal
exit, together with a deterioration in global economic conditions are expected
to weigh on investment, trade and productivity - important determinants of
economic growth. The deteriorating outlook for productivity is a particular
worry as it limits sustained wage growth, living standards and the UK’s
longer-term growth potential.
“The continued
pressure on business activity and cashflow from historically high stockpiling,
loss of business, and costly contingency planning is expected to limit the
extent to which economic activity is able to rebound over the near term. Set
against this, UK GDP growth will be supported in part by resilient household
consumption and stronger government spending. Bold public spending commitments
where the overriding objective is stronger growth and productivity can help
support the UK economy at a time of significant change.
“The risks to the
outlook for the UK economy remained skewed to the downside. A messy and
disorderly departure from the EU would palpably increase the likelihood of the
UK economy slipping into a marked downturn, particularly given the lack of
actionable information that businesses need to help mitigate some of the
impacts of a disorderly exit.”
Responding to the
forecast, Adam Marshall, Director General of the British Chambers of Commerce,
added: “Our latest forecast shows a number of warning lights are flashing for
the UK economy, even if we are able to avoid a messy and disorderly exit from the
EU in just a few weeks’ time.
“There’s no dancing
round the fact that Brexit uncertainty has hit business investment hard. In
addition to reaching a negotiated settlement with the EU, the government should
be preparing big new incentives for business investment in the UK, and should reconfirm
its unconditional backing for the big infrastructure projects our economy needs
to unlock growth.
“Amidst a slowing
global economy and continued political uncertainty, the UK government needs to
use the autumn Budget to back infrastructure, help businesses train and
re-skill more people, and cut the high up-front costs of doing business in the
UK.”
Key points in the
forecast:
- UK GDP growth forecast for
2019 is downgraded from 1.3% to 1.2%and from1.0% to 0.8% in 2020 and
remains unchanged at 1.2% in 2021
- Quarter-on-quarter GDP growth
is forecast to pick-up to 0.3% in Q3 2019, up from the 0.2% contraction in
Q2
- Forecast for business
investment growth been downgraded to -1.5% for 2019 (from -1.3%)and to
-0.1% for 2020 (from +0.4%), before growth of 0.8% in 2021 (downgraded
from 1.1%)
- UK official interest rates
are expected to remain at 0.75% throughout 2019 and 2020, before rising to
1.0% in 2021, a year later than in our previous forecast
- UK public sector net
borrowing is forecast to be £48.2 billion higher over the next three years
than predicted by the Office for Budget Responsibility at the 2019 Spring
Statement, reflecting marked changes to government spending commitments
and weaker expected tax revenue
- BCC expects export growth of
1.3%, 1.3% and 1.5%,compared to import growth of 4.2%, 1.6% and 2.0%, both
are weaker compared to our previous forecast
- Labour productivity is
expected to grow by just 0.4% in 2019, 0.6% in 2020 lower than our
previous forecast of 0.7% and 0.8% respectively. Our forecast for 2021
remains unchanged at 0.8%
- Forecast for growth in
household consumption been upgraded to 1.5% for 2019 (from 1.4%), 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 2.9%, 2.8%
and 2.9% respectively, compared with inflation of 2.1%, 2.2% and 2.1%.
