BCC forecast: Uncertainty constraining UK economic growth
It is cutting growth expectations from 1.6% to 1.5% in 2017, from 1.2% to 1.1% in 2018, and from 1.4% to 1.3% in 2019.
The slight downgrade to the leading business group’s forecast is mainly driven by a slightly weaker contribution from net trade across the forecast period, while household consumption and business investment are expected to remain sluggish through the forecast period. UK productivity is also forecast to remain subdued.
Inflation is expected to remain elevated in the short-term, peaking at 3% in the final quarter of this year, and then moderate slightly as the impact of the post-EU referendum slide in sterling fades.
However, inflation is forecast to outpace earnings until 2019, eroding real wages and weighing on consumer spending, a key driver of UK economic growth. As such, our new forecast is that the next increase in UK official interest rates, to 0.75%, will occur in Q4 2019.
The BCC expects UK public sector net borrowing to be £12.4 billion higher over the next three years than predicted by the Office for Budget Responsibility at the 2017 Autumn Budget, with slower growth expectations likely to reduce the Exchequer’s ability to generate tax revenue.
With the UK economy expected to continue on a path of slow and sluggish growth, the business group is urging a far stronger focus on ‘fixing the fundamentals’ of the UK economy over the coming year – as skills and labour shortages, congested infrastructure, patchy digital connectivity, a slow planning system and high up-front costs stymie investment and stunt productivity improvements.
At the same time, now that a breakthrough has been reached on the first phase of Brexit negotiations, the UK government must look to answer business’s practical questions around trade to provide further clarity to firms. ■