HOUSEHOLDS struggling to pay off their debts could hold back Britain’s economic recovery, the British Chambers of Commerce (BCC) has warned today.
The BCC has raised its economic growth forecast for 2013 from 1.3 per cent to 1.4 per cent and for 2014 from 2.2 per cent to 2.7 per cent, joining a string of forecasters that have increased their gross domestic product (GDP) predictions.
Forecasters at the BCC now think the size of the UK’s economy will grow next year to exceed its pre-recession peak reached in the first quarter of 2008. But the Chambers trimmed its 2015 forecast from 2.5 per cent to 2.4 per cent, warning that household consumption will moderate due to high levels of personal debt.
Analysts have warned Britain’s economic growth is being stoked by consumers spending their savings rather than the “march of the makers” export-led recovery envisaged by Prime Minister David Cameron and Chancellor George Osborne.
John Longworth, the BCC’s director-general, said: “It is really great that next year the UK economy is finally expected to bounce back from the deepest recession in modern times.
“But we must acknowledge that longer-term challenges are still looming. As household consumption slows in the medium term, we have to find ways of boosting business investment and exports as rebalancing our economy is critical to our long-term economic future.”
David Kern, the BCC’s chief economist, added: “We expect GDP growth to remain strong in the short-term, as the housing market continues to boost household consumption. But, while it was necessary to rely on the consumer and on housing in the early part of the recovery, it must now become more balanced, particularly towards exports, as household consumption will slow.
“While we forecast a degree of rebalancing, net exports are not making enough progress, and risks still emanate from the eurozone where the present calm could be deceptive.”
Figures compiled by the Treasury showed that the average forecast is for the UK economy to expand by 1.4 per cent in 2013 and by 2.3 per cent in 2014.
The Economic Research Council (ERC) held its annual “clash of the Titans” forecasting event on Tuesday night, at which three invited economists made predictions for the year ahead.
The ERC said: “The real-terms fall in average earnings over the past four years has been partly responsible for the ‘cost of living crisis’ that some say the UK is facing. For the past three quarters, however, earnings have levelled off and are no longer falling in real terms.
“Our three forecasters have different views about what will happen next, although all agree Q4 2013 will be a bad quarter for real earnings growth.
“After that, however, Ros Altmann [pictured] is the most optimistic, expecting the trough to appear in Q4 and a recovery after that. On the other hand, Kevin Daly thinks we will see a big drop in Q2 of next year – most of which we’ll make up the following quarter – while Stephen King is somewhere in the middle.”