GDP growth is
forecast to slow from 1.3% for this year to 1.0% in 2020 - the weakest outturn
since 2009 – according to the latest economic forecast from British Chambers of
Commerce (BCC).
Although this is a
slight upgrade on BCC’s previous forecast of 0.8%, it indicates that by the end
of 2020 the UK economy will have experienced its second weakest decade of
average annual GDP growth on record. The BCC has upgraded its growth forecast
for 2021 from 1.2% to 1.3%.
The upgrades are
largely driven by stronger expected levels of government spending - both
observed in the 2019 Spending Round and the anticipated uplift in expenditure
by any incoming government.
However, with tax
revenue expected to weaken amid a slowing economy, stronger government spending
is expected to come at the cost of higher borrowing. UK public sector net
borrowing is forecast to be £83.4 billion higher over the next three years than
predicted by the Office for Budget Responsibility at the 2019 Spring Statement.
According to the BCC
forecast, weaker outlook for business investment, net trade and consumer
spending are expected to weigh on the UK growth prospects over the forecast
period:
- Business investment is
forecast to contract by 1.0% in 2019 and by a further 0.7% in 2020.
Uncertainty, particularly over Brexit, and the upfront costs associated
with doing business in the UK, are expected to continue to weigh on
investment decisions.
- The UK’s net trade position
is forecast to be weaker over the forecast period than in the previous BCC
forecast. A deteriorating outlook for the global economy, growing global
trade tensions and continued uncertainty on the UK’s future relationship
with the EU are likely to stifle export sales.
- While average earnings growth
in real terms is set remain in positive territory amid weakening
inflation, household spending is expected to be limited by a slowing
labour market.
Suren Thiru, Head of
Economics at the British Chambers of Commerce, said: “Our forecast points to
several years of anaemic activity in the UK economy unless decisive action is
taken.
“An expansion in
government spending is likely to give a nudge to the UK economy, whoever wins
the General Election. However, a slowing global economy and unrelenting
political uncertainty are expected to weaken business investment, trade and
consumer spending, limiting the UK’s growth trajectory.
“Increased public
spending where the objective is to strengthen growth and productivity can help
support the UK economy in the near term. However, a sluggish economy could
restrict the UK’s capacity to collect enough tax revenue to deliver a marked
boost in public spending. Under such conditions significant and sustained
government borrowing could leave the UK more exposed to economic shocks.
“The downside risks
to the UK’s economic outlook remain concerningly high. Worsening global trends
and uncertainty over the course of Brexit present real dangers for the UK
economy. More uncertainty in the aftermath of the General Election and a
persistent lack of clarity on the UK’s future trading relationships could also
result in more muted growth.”
Adam Marshall,
Director General of the British Chambers of Commerce, added that the needs of
business have been glossed over in the General Election campaign, and the
latest forecast shows the danger of allowing this to continue.
“As soon as the
smoke clears from the election battlefield, economic growth must be put front
and centre again in Westminster," he added. "No incoming government
can deliver its promises to the electorate without healthy and thriving
business communities – or without a clear and detailed plan for the UK’s future
relationship with the EU.
“As long as
businesses are held back by Brexit uncertainty, high up-front costs, skills
gaps, and poor infrastructure, we can expect growth to be mediocre, at best. At
this critical moment, details matter. An incoming government needs to get both
the signals and the substance right – and give companies the confidence to
invest.”
