BCC Upgrades UK Short-Term Economic Prospects

September 2010 Economic Forecast

The British Chambers of Commerce (BCC) has published its latest Economic Forecast today (Monday) and raises its expectations for UK GDP growth to 1.7% for this year, and to 2.2% for 2011.

Despite the more positive short-term view, it also predicts that the pace of growth will slow sharply over the medium-term as the Coalition Government's tough deficit-reduction measures kick in.

While the BCC commends the Coalition's commitment to slash Britain's huge budget deficit by focusing on curbing public spending, the organisation argues that the cuts must be coupled with a successful growth strategy, which ensures the economy's productive potential is supported.

Maresa Molloy, Head of Policy and Information at Liverpool Chamber of Commerce commented: "Locally, in Q2 we had just edged into positive territory and a recovery seemed apace. As austerity measures are put in place and while a veil of indecision remains over public sector spending we anticipate that this will be reflected in this quarter's figures.

"In the longer term, it is important to bear in mind that the implementation of the tough deficit cutting programme will inevitably have a serious dampening affect on demand and risks of an economic setback remain."

Commenting on the UK's economic outlook, David Frost, the BCC's Director General, said: "Business accepts that reducing the deficit, with a clear focus on spending cuts, is vital in order to restore confidence, international credibility and stability. However, deficit reduction on its own will not deliver a sustainable recovery.

"There must be a relentless focus on ensuring that business is able to deliver growth and create employment. We need policies that rebalance the economy towards wealth-creating businesses, and enable the private sector to invest, export and create new jobs. Failure to get this right poses the biggest risk to recovery."

BCC Chief Economist, David Kern, added:

"UK GDP was very strong in the second quarter of 2010 and the pace of growth will remain satisfactory in the second half of this year. Activity will be supported in the short-term by the cumulative impact of the huge injections of stimulus during the recession, the earlier sharp falls in sterling, and the rebuilding of stocks.

"However, we expect a sharp slowdown in the pace of growth to start in the first quarter of 2011, as VAT increases to 20% and tough spending cuts are implemented. The need to significantly cut the deficit, strengthen the banking sector, and reduce personal debt will inevitably limit growth until the middle of the decade. Over the next four to five years, GDP growth is likely to average just under 2% per annum, considerably less than the 3% average growth recorded in period between 1993 and 2007.

"If successful, the forceful deficit-cutting strategy announced in the Emergency Budget would put the UK on a path of sustainable and affordable recovery, and could help create a leaner and fitter economy. But, the scale of fiscal retrenchment, and the decision to cut the deficit at an accelerated pace, will inevitably increase dangers of a double-dip recession. The new policy faces obstacles, and will only succeed if it is accompanied by a coherent growth strategy.