The British Chambers of Commerce (BCC) has slightly downgraded its medium-term outlook for the UK economy over the next few years.
While the BCC has slightly upgraded its UK growth forecast for 2017 from 1.5% to 1.6%, its growth expectations for 2018 and 2019 have been cut from 1.3% to 1.2%, and 1.5% to 1.4% respectively.
The BCC has slightly upgraded its forecast for 2017, driven by a moderately stronger outlook for consumer spending growth in 2017. While inflation remains elevated, it is expected to peak at 3% by the final quarter of 2017. However, inflation is still forecast to outpace average earnings until 2019, eroding real wages and weighing on consumer spending, a key driver of economic growth, in future years.
Dr Adam Marshall, Director General of the British Chambers of Commerce, said:“While some businesses report strong trading conditions, the UK economy as a whole is treading water, and there is no sign on the horizon of a return to healthier levels of growth.
“Our forecast suggests that the hoped-for rebalancing of the UK economy towards investment and export is unlikely to materialize in the medium term. The rising upfront cost of doing business in the UK, the uncertainty around Brexit, and the constraints created by skills gaps and shoddy infrastructure collectively outweigh any benefit arising from the recent depreciation of sterling. A cheaper currency does not automatically mean an export boom, no matter how some politicians and commentators will it to happen.
“Business communities across the UK need to see action to boost confidence on two fronts: Brexit and the business environment here at home. A comprehensive Brexit transition deal, and a swift shift to focus on the future UK-EU trade relationship, are needed this autumn. The UK also needs an Autumn Budget that pulls out the stops to support business growth, at a time of significant uncertainty and change.”
A weaker contribution from net trade and more subdued consumer spending growth were the main reasons for the slight downgrade to the BCC’s growth forecast for 2018. While the outlook for export growth remains unchanged, the rate of import growth is expected to increase, with little evidence that customers are switching from imported goods despite their rising cost. Falling real wages, and a slight weakening in labour market conditions, will see consumers rein in their spending in 2018. The slight downgrade for growth in 2019 reflects a lower contribution from net trade and weaker investment compared to our Q2 forecast.
The UK economy is expected to remain on a slow-growth trajectory for the forecast period, which reinforces the need for decisive action to boost the domestic business environment. The government must use the Autumn Budget to alleviate the burden of upfront costs facing companies, incentivise investment, and improve infrastructure.
