The UK economy is set for its weakest year of growth in almost a decade as wage growth fails to translate into increased consumer spending, a top business body warned today.
The British Chambers of Commerce (BCC) has trimmed its growth expectations for the economy, forecasting GDP expansion for 2018 of just 1.3 per cent, down from a previous forecast of 1.4 per cent.
If realised, it would mark the weakest annual growth since 2009, when the economy was in the throes of the global financial crisis.
Other current estimates for UK GDP have the economy growing at a slightly higher rate of about 1.5 per cent to 1.6 per cent this year.
Meanwhile, the EY Scottish Item Club’s 2018 summer update – published last week – predicted that Scotland’s non-oil GDP would grow by 1.3 per cent in 2018, a figure downgraded from the 1.4 per cent predicted in December last year.
The BCC has also today downgraded its UK GDP growth forecast for 2019 from 1.5 per cent to 1.4 per cent.
It noted that its 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 business organisation does not expect this to translate into materially stronger spending in the short term, with weak productivity expected to limit the extent to which wages will increase.
It warned that 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 just 0.9 per cent, from 2.4 per cent last year. The “high upfront cost of doing business in the UK” and ongoing uncertainty over Brexit is expected to continue to stifle business investment, the BCC added.
The UK’s net trade position is also expected to weaken over the next few years by more than expected in the group’s 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, which accounts for about two-thirds of the economy, is expected to slow to 1.2 per cent in 2018, which would be the weakest outturn since 2010.
Adam Marshall, director-general of the BCC, said: “A decade on from the start of the financial crisis, the UK now faces another extended period of weak growth amidst a backdrop of both domestic and global uncertainty.
“Our forecast should serve as a wake-up call to government – as it demonstrates that ‘business as usual’ is not an option when it comes to the economy.
“With firms facing ongoing Brexit uncertainty, increasing global protectionism and instability in some parts of the world that will impact on costs and profits, now is the time for more robust action to support business confidence and investment.”