Fall in sterling failing to lift UK growth
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 leading business group 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.
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. ■