As the Chancellor prepares to deliver his latest Budget, the British Chambers of Commerce (BCC) has downgraded its UK GDP growth forecast, from 2.5% to 2.2% in 2016, and from 2.5% to 2.3% in 2017; for 2018, included for the first time in the forecast, GDP growth of 2.4% is predicted.
The downgrade is due to weaker than expected growth across most areas of the economy, reflecting a general global slowdown. Despite these issues, UK GDP is expected to expand at a moderate and relatively steady pace over the next three years.
Dr Adam Marshall, Acting Director General of the British Chambers of Commerce, said: “In the face of a slowing economy, and with further potential risks on the horizon, there is a case for sustained government action to improve prospects for business.
“Wherever possible, given very real fiscal constraints, the Chancellor must use his forthcoming Budget to bring forward road, rail, and digital infrastructure projects that would help UK companies do more business. He must also avoid adding further to the long list of new business costs and taxes introduced over recent months, which clobber firms before they turn over a single pound and undermine investment.
“Our forecast should stand as a wake-up call. The UK’s economic performance is reasonably good when measured against our main competitors, but it’s only mediocre when compared against long-term trends. Our trade deficit remains too high, and is not forecast to improve substantially over the next three years. In turbulent times, a consistent focus on improving infrastructure, sweeping away barriers to business investment, and supporting exporters would be a real recipe for success."
David Kern, Chief Economist at the BCC, said: “Though we have downgraded our growth forecast, UK GDP is expected to expand at a stronger pace than in most other G7 economies, and broadly in line with our long term trend. Growth will benefit from higher disposable incomes, low inflation and a strong labour market. Though services and consumer spending will remain the key growth drivers of the UK economy, our forecast envisages slower growth in these areas than we predicted previously.
“Weaker growth than previously expected in most UK sectors reflects a general global slowdown, which is due to lower productivity, adverse demographic trends and geo-political uncertainties. The worse net UK trade position that we are now predicting is mostly due to weaker global growth, but we do need to do more to boost exports.
“Worsening global trends will present the main dangers for the UK economy over the next few years. Given the unacceptable size of the current account deficit, failure to achieve a meaningful improvement in net exports will make the UK vulnerable to speculative attacks, and our credit rating could be at risk.”
Key points of the forecast include:
- Construction output growth is forecast at 0.5% in 2016, 2.6% in 2016 & 2.6% in 2018.
- The UK unemployment rate is forecast to fall from 5.1% in Q4 2015, to 4.9% in Q4 2016, 4.8% in Q4 2017 and 4.7% in Q7 2018. Net fall in total unemployment of 101,000 forecast over the next 3 years.
- UK public sector net borrowing is forecast to fall steadily over the next few years.
- The new forecasts for earnings growth are lower than those we made in Q4.
