The BCC’s quarterly economic forecast shows:
• UK GDP 2011 growth at 1.1% (from 1.3%); UK GDP 2012 growth at 2.1% (from 2.2%)
• UK GDP growth will strengthen to 2.5% in 2013
• UK unemployment will peak at 2.62m in Q4 2012, up from 2.6m in Q2 2012
• UK public sector borrowing at £126.9 billion in 2011/12, some £5 billion higher than the OBR forecast
• Interest rates to start rising in August 2012
Though growth is expected to be weaker over the short-term, the new forecast predicts a gradual improvement, and warns against unjustified gloom about the UK’s economic prospects.
Commenting, David Frost, director general of the BCC, said: “The challenges faced by the UK economy are more difficult than first thought at the beginning of the year. Growth will be slow, inflation will remain high, and the number of those out of work will increase.
“Despite this, there is no need for doom and gloom. We expect prospects to improve over the medium-term, and believe that the UK has the potential to recover and thrive. But this will depend on creating the right conditions for businesses to grow.
“The government is right to reduce the deficit, but these measures must be matched by policies to stimulate growth. The main drivers of UK growth over the next two years will be net exports and, to a lesser degree, business investment. But the re-balancing of the economy towards net exports and investment is not yet happening at an adequate pace.
“We have to get the economy onto a more sustainable long-term footing, and it is business that will help us achieve that. For the government, that means taking a serious look at the infrastructure that supports our businesses, from the education system to transport links, as well as reducing red tape and reforming the planning system, to allow firms to expand and grow. If we don’t get these policies right, we risk any recovery being weak and short-lived.”
David Kern, chief economist at the BCC, said: “With global prospects worsening, and the UK growing slower than previously envisaged, the economy faces serious challenges. There are painful adjustments ahead, with a decline in living standards, though the recent pessimism from some quarters is unwarranted. UK growth with stay positive, but it won’t be until 2013 that we will see GDP returning to pre-recession levels, and 2014 until consumer spending recovers to its Q1 2008 level.
“In addition to maintaining low interest rates, if weak economic growth continues we expect the MPC to consider increasing the Quantitative Easing (QE) programme from £200 to £250 billion. There may also be a case for action to stimulate stronger bank lending. Regulators could consider temporarily relaxing bank capital requirements, or other measures, which could promote the availability of credit to viable businesses that want to invest.
“Future growth will be constrained by the consequences of the credit bubble and the banking crisis. Reducing high debt levels will be painful and inevitably result in a prolonged period of relatively low economic growth. Although the policy options available are limited, authorities must focus on policies that will enhance the economy's growth potential and enable the UK to regain the productivity losses incurred during the recent recession.”
