The British Chambers of Commerce (BCC)’s latest forecast sees the UK economy growing by 1.3 per cent in 2019, up marginally from the 1.2 per cent it had pencilled in earlier, due to what it described as “exceptionally rapid stock-building early in the year”.
However, the business group has downgraded its growth forecast for 2020 to 1 per cent from 1.3 per cent, and to 1.2 per cent from 1.4 per cent in 2021 as the unwinding of historically-high inventory levels coupled with weaker business investment weigh on economic activity.
The report said that business investment is forecast to contract at a faster rate in 2019 and recover more slowly in 2020 than expected in the BCC’s previous forecast.
“The continued Brexit impasse, including the growing possibility of a no-deal exit, together with the high up-front cost of doing business in the UK and the running down of excess stock, is expected to suffocate investment activity over the near term,” it warned.
Exchange rate volatility, Brexit uncertainty and a subdued global economy are expected to weaken trading conditions for UK exporters.
But consumer spending is expected to remain resilient with earnings growth forecast to continue to exceed price growth over the forecast period and unemployment expected to remain low by historic standards.
The BCC said its latest forecast is a “clear warning sign” that the next UK prime minister must set out a clear roadmap for how the political impasse in Westminster can be broken and an agreement reached to prevent further slowdown in the economy.
Suren Thiru, head of economics at the BCC, said: “The revisions to our forecast suggest that the UK economy is likely to remain on a disappointingly subdued growth path for some time to come.
“The deteriorating outlook for business investment is a key concern, as it limits the UK’s productivity potential and long-term growth prospects. On the upside, household spending, a key driver of UK economic output, is expected to be supported by relatively low unemployment and positive real wage growth.”
The BCC is also calling for a “strong and clear” strategy on the domestic agenda, including urging the next UK government to use the forthcoming Comprehensive Spending Review to affirm its commitment to delivering major infrastructure projects, such as HS2, that underpin economic growth.
As part of its latest report, the BCC has upgraded its growth forecast in the key services sector to 1.4 per cent from 1.1 per cent in 2019 but downgraded its forecasts for 2020 and 2021.