GEORGE Osborne must use next month’s spending review to commit to major capital investment, the head of the British Chambers of Commerce said today, as he warned of an “unduly slow” economic recovery.
Unveiling the group’s latest forecasts for a range of areas including inflation, unemployment and government borrowing, John Longworth, the BCC’s director general, said the UK was “performing below its potential”.
He called on the Chancellor to “reinforce his commitment to a business-driven recovery” and claimed there was still “plenty of scope” to cut public sector spending.
The BCC, which speaks for more than 100,000 businesses across Britain, said a number of risks to economic recovery remained despite it making a surprise upgrade to it forecasts for this year and the following two.
Just days after the Organisation for Economic Co-operation and Development (OECD) trimmed its growth forecast for the UK for 2013 to 0.8 per cent from 0.9 per cent, the BCC said it expected the economy to expand by 0.9 per cent, compared with its previous estimate of just 0.6 per cent.
It hiked its 2014 forecast from 1.7 per cent to 1.9 per cent while the following year it expects growth of 2.4 per cent, up from an earlier prediction of 2.2 per cent.
However, the business body now believes that unemployment will reach 2.65 million in the third quarter of 2014 – some 50,000 higher than previously thought.
Public sector borrowing in the current financial year is forecast at £117.5 billion, a figure that is £2.5bn lower than the Office for Budget Responsibility forecast at the time of the Budget in March. But the BCC warned that UK public finances will remain under pressure.
Speaking ahead of next week’s spending review submission by the BCC, Longworth said: “The upward revision in our growth forecasts is encouraging. We have constantly said that earlier fears of a triple-dip recession were misguided and risked damaging confidence unnecessarily.
“Unfortunately, this does not change the fact that economic growth is still too weak, and the pace of recovery will remain unduly slow for a while yet. We are still a far cry from getting the economy fully back on track.”
He added: “The spending review is a prime opportunity for the Chancellor to reinforce his commitment to a business-driven recovery. The economy only stands a chance at improving if the government shifts priorities towards capital investment and measures that will give firms the tools they need to grow.”
He said the Treasury and Bank of England could do more to provide guarantees that would encourage private investment in infrastructure and other big capital projects.
The BCC’s chief economist, David Kern, said: “The two main risks facing our forecast are worsening eurozone prospects and an upturn in UK inflation, which would squeeze real incomes and could harm growth.
“Any attempts to boost exports by encouraging a weaker pound, such as extending quantitative easing, could prove counter-productive as the damage caused by imported inflation is likely to outweigh the small benefits to exporters.”