The British Chambers of Commerce (BCC) has downgraded its UK GDP growth forecast for 2014 from 3.2% to 3.0% in 2014.
The updated figure still represents the fastest growth for the British economy since 2007. The BCC has also revised down its growth forecasts for the following two years from 2.8% to 2.6% in 2015 and from 2.5% to 2.4% in 2016. This is largely due to slower than expected growth in services, household consumption and exports and weaker than expected GDP growth in Q3 2014
BCC Director General, John Longworth, says that while we welcome the strong 2014 growth indicated by the forecast, he believes the downgraded forecast is an ominous warning sign and urges the government to waste no time in addressing key areas that are holding back good firms, such as access to capital to grow their business.
ECONOMIC FORECAST – OVERVIEW
- The BCC is lowering its UK GDP growth forecast from 3.2% to 3.0% in 2014, from 2.8% to 2.6% in 2015, and from 2.5% to 2.4% in 2016.
- Though household consumption and services output are forecast to grow more slowly than predicted in Q3, they will be the main contributors to GDP growth in the next few years.
- Strong business investment is predicted with growth of 7.5% in 2014, 7.5% in 2015 and 7.4% in 2016.
- UK interest rates are expected to rise to 0.75% in Q3 2015, two quarters later than in the Q3 forecast.
- The downgrades are mainly due to lower than expected growth in services, household consumption and exports.
- A slightly lower starting point of the new forecast, due to weaker actual GDP growth in Q3 2014 than previously predicted, also contributed to the downward revision.
- Quarterly GDP growth is expected to remain at 0.7% in Q4 2014, followed by a slowdown to 0.6% per quarter from Q1 2015 onwards
Commenting, John Longworth, Director General of the BCC said:
“Although this updated forecast slightly lowers our growth predictions, it also confirms that Britain will be one of the fastest-growing developed economies as we close out 2014. This is a great achievement, and businesses up and down the country should be congratulated for their hard work and resolve to drive the recovery in the face challenges and uncertainty both at home and abroad.
“However, there is no reason why a 3% growth rate should be the height of our ambitions. Downgrades to our growth forecast are a warning sign that we still face a number of hurdles to securing a balanced and sustainable recovery. A number of headwinds from the global economy are also having a real impact on British businesses. The eurozone is weak, with a real risk of deflation, growth in emerging markets has slowed and political uncertainty in Ukraine, the Middle East and elsewhere is affecting business and consumer confidence. Uncertainty in the economy generally affects consumer confidence as does the spending and debt cycle.
“Our dependence on consumer spending and mortgages means that the UK economy is particularly sensitive to interest rates. Any short-term rate rises could present a huge risk to our economy. With UK exports broadly flat, it is crucial to reassess the UK’s overall export growth strategy and the support available to existing and potential exporters.
“Nonetheless it is encouraging to see that British businesses aren’t backing down from their expansion and investment plans, despite the uncertain economic backdrop. We must continue to support these businesses as they invest, grow, innovate and export. A sustainable, well-balanced economy can only be achieved if there is commitment from all political parties to long-term strategic planning, rather than the political short-termism that has plagued British growth prospects for too long.”