BCC cuts UK growth forecasts as Brexit uncertainties linger

Continuing Brexit uncertainties have led to a downgrade in growth forecasts for the UK economy by the British Chambers of Commerce.

The business lobby group said it now expected 1.1% growth in 2018, down from 1.2%. Expectations for 2017 were cut from to 1.5% from 1.6% and to 1.3% from 1.4% in 2019.

“Despite pockets of resilience and success, and strong results for some UK firms, the bigger picture is one of slow economic growth amid uncertain trading conditions,” said BCC director general Adam Marshall.

He added that despite a deal last week over the Irish border that could smooth the way for trade talks between the UK and EU, “Brexit uncertainty still lingers over business communities, and is undermining many firms’ investment decisions and confidence”.

The slight downgrade to the BCC forecast was mainly driven by a slightly weaker contribution from net trade across the forecast period, while household consumption and business investment were expected to remain sluggish through the forecast period. UK productivity is also forecast to remain subdued.

Export growth was expected to grow at 4.3% in 2017, 3.1% in 2018 and 2.9% in 2019 as global growth drove international demand, while import growth was expected to grow by 3.7% in 2017 2.7% in 2018, and 2.9% in 2019. This left the UK's net trade position weaker across the forecast period than the BCC forecast in third quarter.

Inflation was expected to remain elevated in the short-term, peaking at 3% in the final quarter of this year, and then moderate slightly as the impact of the post-EU referendum slide in sterling faded.

However, it warned that inflation is forecast to outpace earnings until 2019, “eroding real wages and weighing on consumer spending, a key driver of UK economic growth”.

As a result, the BCC said it expected the next rise in interest rates would not happen until the last quarter of 2019.

Public sector net borrowing is expected to be £12.4bn higher over the next three years than predicted by the Office for Budget Responsibility at the 2017 Autumn Budget, with slower growth expectations likely to reduce the Exchequer’s ability to generate tax revenue, the BCC said.

BCC head of economocs Suren Thiru said the domestic economy was in a challenging period with growth “likely to remain well below average for a prolonged period”.

“Continued uncertainty over Brexit and the burden of upfront cost pressures facing businesses is likely to stifle business investment, while falling real wage growth is expected to continue to weigh on consumer spending,” Thiru said.

“Furthermore, with businesses continue to report that the post-EU referendum weakness in sterling is hurting as much as its helping, the significant imbalances currently facing the UK economy is expected to persist through the forecast period.”

“Despite the downgrades to our growth projections, the risks to our forecast remain on the downside. Should the UK face a disorderly exit from the European Union, the UK’s growth rates may be materially lower over the medium term.”