Robust consumer spending and a brighter outlook for trade and investment will mean the UK’s economic slowdown this year is less severe than previously feared, the British Chambers of Commerce has predicted.
But in its latest set of economic forecasts, published as the UK prepares to embark on Brexit negotiations, the business group cut its outlook for 2018 and warned higher inflation would take a chunk out of household budgets.
The BCC joined other bodies in raising its outlook for the UK’s GDP growth this year after a stronger-than-expected close to 2016 and signs of resilience to the Brexit vote among businesses and consumers. But it remains more pessimistic than other forecasters such as the Bank of England and the International Monetary Fund.
The BCC is now forecasting that after expanding 1.8% in 2016, the UK economy will grow 1.4% in 2017. That is faster than its forecast made in December for 1.1% growth this year.
It said the upgrade reflected a strong finish to 2016 for UK growth, higher than expected levels of consumer spending and a slight improvement in the outlook for investment and trade.
But the group nudged down its expectations for 2018 from 1.4% to 1.3%, and published its first forecast for 2019 for 1.5% growth. It noted that if growth panned out as forecast it would be well below the long-term average.
“Thanks to the hard work of businesses and the continued resilience of the redoubtable British consumer, the UK economy is likely to grow somewhat more strongly than we’d previously expected during 2017,” said BCC director general Adam Marshall.
“Yet with several years of unspectacular growth ahead, coupled with inflationary pressures and the uncertain outcome of Brexit negotiations, it has never been more important to tackle the longstanding constraints that limit business confidence and growth here at home.”
He described last week’s maiden budget from chancellor Philip Hammond as a “missed opportunity” for the government to do more on infrastructure improvements, on support for international trade, and to lower upfront taxes and costs on businesses.
“More thoughtful and radical moves to improve the business environment would give businesses – and GDP forecasts – a boost during a critical and complex time,” said Marshall.
A number of forecasters have raised their outlook UK growth for this year, notably:
- The Bank of England now forecasts 2.0% up from the 1.4% it said in November
- The Office for Budget Responsibility now forecasts 2.0% vs 1.4% in November
- The OECD now forecasts 1.6% vs 1.2% in November
- The International Monetary Fund forecasts 1.5% vs 1.1% in October
- The thintank NIESR forecasts 1.7% vs 1.4% in November
- But the latest CBI forecast in November was a downgrade to 1.3% growth in 2017, below the 2% forecast made last May before the Brexit vote
The BCC’s outlook chimed with warnings from thinktanks and anti-poverty campaigners that the pound’s weakness since the Brexit vote will stoke inflation this year as it makes imports to the UK more expensive.
The BCC expects inflation will rise from 1.8% on the latest figures to above the Bank of England’s 2% target early this year. It predicts inflation over 2017 will be 2.4%, rising to 2.7% in 2018. That is higher than the previous forecast of 2.1% and 2.4%, respectively.
Suren Thiru, the BCC’s head of economics said those price pressures, coupled with lacklustre pay growth, would weigh on the UK’s economic growth.
“The resilience in consumer spending, a key driver of UK growth, will slowly dissipate over the coming months as higher inflation and muted wage growth combine to erode consumer spending power,” said Thiru.
The upside to the weak pound for the economy would be some support for exports, he added. Sterling’s sharp depreciation since the referendum has helped make UK goods cheaper in overseas markets and there has been some evidence that exports have picked up as a result.
But trade was a smaller contributor to the UK economy than consumer spending, Thiru noted, and so the pound effect on exports would have a limited impact on headline growth.
A separate report into the UK’s jobs market was similarly cautious about the economic outlook. Recruitment agency ManpowerGroup said business hiring had dropped to its weakest level for three years.
Its survey, based on responses from 2,119 UK employers, found hiring confidence had fallen sharply in London and Scotland, the two strongest remain-supporting regions of the UK. Manpower’s overall net employment outlook, covering the private and public sectors, dropped to +5% from +7% three months ago, showing there were still slightly more employers who planned to hire staff than cut them.
Mark Cahill, ManpowerGroup UK managing director, said: “The impending trigger of article 50 is clearly affecting confidence in the job market.
“The employment rate is at its highest level since records began in 1971, but if you lift the bonnet to look at the engine of the economy, job creation has slowed and employers are becoming more cautious. The companies which have powered Britain’s economy through the immediate post-referendum period are easing off the gas.”
UK economy will grow more strongly than expected, says BCC – The Guardian