The UK’s mid-sized and smaller exporters should be able ride a “robust” backdrop of strong global demand – but the country will still remain mired in historically low rates of growth for the next three years.
That is the mixed forecast published today by the British Chambers of Commerce (BCC), which says: “UK GDP growth is set to remain well below the historical average throughout the forecast period.
“Our latest forecast also implies that the UK will remain among the worst-performing economies in the G7 until 2020 at the earliest.”
The BCC has raised its forecast for UK economic growth from 1.1 per cent to 1.4 per cent this year and from 1.3 per cent to 1.5 per cent for 2019, and the first forecasts for 2020 is for expansion of 1.6 per cent.
Slightly stronger-than-expected levels of consumer spending are largely behind the growth upgrades this year and next, the BCC said.
It added: “The UK’s export performance is expected to remain robust on the back of strong global growth, particularly in key markets such as the eurozone and US.
“That said, with imports also likely to continue to grow at a good rate, the contribution of net trade to UK GDP growth over the near term is to be limited, particularly with little evidence of a sterling boost to the UK’s overall net trade position.”
Dr Adam Marshall, director general of the BCC, said many individual British businesses were doing well but “the inescapable conclusion from our forecast is that the UK economy as a whole should be performing better than it is, given robust and sustained global growth.
“Although strong global conditions have given the UK a bit of a boost through higher export demand in recent months, we have serious concerns about the potential for further growth here at home when the performance of key trading partners slows.”
Marshall added that “sustained skills and labour shortages” remained a problem in the UK, while government focus on fixing such issues was being “distracted by Brexit”.
The BCC said it expected the next 0.25 per cent rise in interest rates by the Bank of England in the second quarter of 2018, followed by another rise in the first quarter of 2019.
Meanwhile, the organisation forecasts inflation of 2.9 per cent for this year and 2.6 per cent next year.
Suren Thiru, head of economics at the BCC, said: “We’ve slightly upgraded our near-term outlook for the UK economy, with a moderate pick-up in pay growth expected to support a modest improvement in consumer spending, a key driver of the UK economy.”
Thiru added that the forecasts implicitly assumed a relatively smooth Brexit with a transitional arrangement where trading conditions will be largely unchanged.
“Failure to achieve such an outcome would likely weigh on UK economic activity over the near term,” he added.