ECONOMISTS at the British Chambers of Commerce (BCC) have slashed their forecast for this year amid renewed demands for radical government action to boost growth.
The business lobby group now expects UK gross domestic product to rise by a meagre 0.1 per cent in 2012, versus 0.6 per cent previously.
Today’s downgrade is the second successive quarterly cut by the BCC, which began the year predicting the economy would grow by 0.8 per cent. However, the group slightly raised its forecast for 2013, from 1.8 per cent to 1.9 per cent.
Even so, BCC director general John Longworth warns that the UK needs growth, “and we need it now”.
High among the suggested measures are calls for the creation of a state-backed bank to boost lending to smaller firms, less business regulation and the formation of a “clear, long-term strategy” on aviation and energy.
“All of these are measures that can be achieved while sticking to the aims of deficit reduction and crucially, maintaining the UK’s market credibility,” Longworth said.
“There are also measures that will help insulate the UK from some of the risks in the eurozone. Investment in infrastructure to create robust rail, air, maritime, energy and digital networks could be privately funded or kick-started by the public sector, with pension funds and sovereign wealth funds able to purchase the assets when the projects are completed.”
David Kern, chief economist at the BCC, argues that financial markets will accept increased investment spending by David Cameron’s government because this would not affect the long-term structural deficit which ministers are seeking to eradicate.
If the commitment to spending cuts is maintained, a fiscal stimulus of up to £6 billion is possible without losing trust in the lending markets.
“Alongside investment in infrastructure, policies that support job creation and enterprise, such as cutting NICs, or raising capital allowances are most likely to benefit the economy,” Kern added.
In its previous forecast, the BCC incorrectly predicted a rebound in the economy during the first quarter that would have allowed the UK to avoid a double-dip recession.
Though the BCC still questions the official figures – which ran contrary to the findings of many business surveys during the first quarter – it had to factor the fall in GDP into its full-year forecast.
The group is now predicting no growth or even a slight fall in economic activity for the second quarter, though it expects prospects to improve from July onwards.
The BCC is sticking with predictions that UK unemployment will top out at 2.9 million, but has pushed back the expected peak by six months to the third quarter of 2013. Unemployment among 18 to 24-year olds is forecast to rise from the current 19.8 per cent to 23 per cent.
Longworth warns that unless government works more closely with business, the economy “will continue to bump along the bottom for longer than we’d all like”. He added: “Businesses are busting a gut in an uncertain environment and they will need to continue to do so.
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Saturday 25 May 2013
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Temperature: 8 C to 17 C
Wind Speed: 14 mph
Wind direction: West