UK economy set for sluggish growth, warns business group

UK

The UK economy will slow markedly next year as uncertainty about the country’s future position in Europe and higher inflation hit consumers and businesses, the British Chambers of Commerce (BCC) has predicted.

The business group believes the UK will avoid recession but still lose momentum as the weak pound pushes up import costs and the resulting rise in inflation erodes people’s spending power.

New figures from the British Retail Consortium and Springboard suggest that consumers may already be becoming more cautious. Visitors to the high street and shopping centres fell in November despite shops cutting prices as part of the Black Friday promotional event. Footfall fell 1% to retail destinations year on year as consumers spent money online instead. This compares with a 0.9% drop in October.

In new forecasts published on Monday, the BCC has upgraded its outlook for GDP growth this year to 2.1% from 1.8%, to reflect a stronger-than-expected performance from the economy in the months following the Brexit vote. It has also nudged up its forecast for 2017 growth to 1.1% from the 1% forecast in September but that would still represent the weakest growth since the financial crisis.

The group downgraded its growth forecast for 2018 to 1.4% from 1.8% on the expectation that higher inflation would curb household consumption and that the UK would see more muted levels of investment, particularly business investment.

Adam Marshall, director general of the BCC, said: “In the absence of a clear road ahead, many companies have been adopting a ‘business as usual’ approach in the months since the referendum, which has kept conditions buoyant this year and prevented a sharp slowdown in growth.

“While some firms see significant opportunities over the coming months, many others now see increasing uncertainty, which is weighing on their investment expectations and forward confidence. Lower sterling and rising inflation are now starting to affect business communities and consumers across the UK.”

The BCC said based on the available economic news and its own survey of businesses, it did not expect the economy to fall into a recession – something groups such as the International Monetary Fund had warned was a risk in the event of a vote for Brexit.

The BCC is forecasting the public finances will be in worse shape as a result of an economic slowdown hitting tax receipts, undershooting the already downbeat expectations of the fiscal watchdog, the Office for Budget Responsibility .

The business group expects inflation to breach the Bank of England’s 2% target next year, with a forecast of 2.1% in 2017 and reaching 2.4% in 2018. Inflation was 0.9% on the last available figures from October, and November figures due on Tuesday are expected to show it edging up to 1.1%.

Business investment is expected to fall by 0.8% in 2016, 2.1% in 2017 and 0.3% in 2018 – better than the previous forecasts for sharper falls in 2016 and 2017, but significantly worse than the 1.9% growth previously predicted for 2018.

The group also warned export growth was set to slow over the coming yearsbefore edging up again in 2018. It said the effect on exports of the falling value of the pound, which makes UK goods cheaper in overseas markets, had previously been overstated.

“While a lower pound is a boon for some exporting businesses, many others see the latest devaluation of sterling less positively, as they are unable to benefit from it,” Marshall said.

“Given our findings, deeper incentives for both investment and exporting will be needed in the months and years ahead. As the Brexit negotiations commence, steps will need to be taken to help ambitious firms overcome the risks, real and perceived, born out of political uncertainty.”

Powered by Guardian.co.ukThis article was written by Katie Allen, for The Guardian on Monday 12th December 2016 00.01 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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