The British Chambers of Commerce (BCC) has today (Monday) slightly downgraded its growth expectations for the UK economy, forecasting GDP growth for 2018 at 1.3% (from 1.4%) which, if realised, will be the weakest calendar year growth since 2009, when the economy was in the throes of the global financial crisis.
The BCC has also downgraded its GDP growth forecast for 2019 from 1.5% to 1.4%.
The downgrades have been largely driven by a more lacklustre outlook for consumer spending, business investment and trade. While real wage growth has returned to positive territory, the UK’s leading business group does not expect this to translate into materially stronger spending over the forecast horizon, with weak productivity expected to limit the extent to which wages will increase, and household finances are likely to remain stretched amid historically low household savings and high debt levels.
Business investment growth is expected to slow in 2018 to 0.9%, from 2.4% in 2017. The high upfront cost of doing business in the UK and the ongoing uncertainty over the UK’s future relationship with the EU are expected to continue to stifle business investment.
The UK’s net trade position is expected to weaken over the next few years by more than expected in the previous forecast. Exporters will struggle to recover the ground lost in the year so far, as growth in key markets moderates.
Growth in service sector output, a key driver of UK GDP growth, is expected to slow to 1.2% in 2018, which would be the weakest outturn since 2010. Consumer-focused industries such as retail and hospitality are expected to remain under the most pressure amid weak consumer spending.
If realised, the forecast suggests the economy is in a torpor, with uncertainties around Brexit, interest rate rises, and international developments such as a possible trade war and rising oil prices, all having an impact. The BCC urges the government to focus as much as possible on the domestic business environment, reducing the uncertainty that firms face, and take action on skills shortages and poor mobile connectivity, which lower productivity and hold UK businesses back.