The British Chambers of Commerce (BCC) has downgraded its growth expectations for the UK economy, forecasting GDP growth for 2018 at just 1.1% (down from 1.3%). The BCC has also downgraded its GDP growth forecast for 2019 from 1.4% to 1.3%. Our latest forecast implies that by 2020 the UK economy will have experienced its second weakest decade of average annual GDP growth on record.
The downgrades to our forecast for GDP growth in 2018 and 2019 have been largely driven by a weaker outlook for trade and investment. Exporters face more subdued growth given continued Brexit uncertainty and the expected slower growth in key markets. As a consequence, net trade is expected to make a negative contribution to GDP growth over the forecast period.
The outlook for investment is more subdued than in our previous forecast with persistent economic and political uncertainty expected to increasingly weigh on investment intentions. Business investment growth is expected to be weaker across the forecast horizon than in our Q2 forecast. The high upfront cost of doing business in the UK and the ongoing uncertainty over the UK’s future relationship with the EU are expected to continue to stifle business investment.
The labour market is expected to continue to be a source of strength for the economy, with the unemployment rate forecasted to remain close to its record low. However, in such a tight labour market, businesses will continue to face significant skills gaps, undermining their potential to grow. At the same time, workers are unlikely to experience meaningful real wage growth as the gap between pay and price growth is forecast to remain negligible.
If realised, the leading business organisation’s latest forecast suggests that the UK economy remains lethargic. Brexit uncertainty and the on-going failure to fix domestic fundamentals – stronger labour supply, digital and physical connectivity, and more – are hurting the UK’s growth prospects. To bolster stronger growth, the government must provide precision on the nature of any future relationship with the EU and answer the practical questions that firms have – a ‘messy’, disorderly Brexit will only add to the uncertainty that already exists. The BCC has outlined and is assessing the key questions that businesses need clarity on in order to take decisions, invest and plan for the future.
Alongside the forecast, the BCC warns the Prime Minister and Chancellor that the government’s upcoming Autumn Budget cannot be a ’business as usual’ affair. Ministers must go all-out to incentivise and kickstart business investment at a crucial turning point for the UK.
Key points in the forecast:
- UK GDP growth forecast for 2018 is downgraded from 1.3% to 1.1%, and from 1.4% to 1.3% for 2019, before rising to 1.6% in 2020 (unchanged)
- Growth in household consumption for 2018 is expected to slow to 1.0%, before rising to 1.3% in 2019 and 1.7% in 2020, largely unchanged from the previous forecast
- Average earnings growth will slightly outstrip inflation over the forecast period, with growth of 2.6%, 2.8%, and 3.0%, compared with inflation of 2.5%, 2.3%, and 1.8%
- BCC forecasts export growth of 1.7% in 2018 – down from 2.8% in the previous forecast – this is due to revisions of previous data. We expect a negative contribution from trade over the forecast period
- Total investment growth of 1.4% in 2018 (down from 1.8% in the previous forecast) with growth of 1.4% in 2019 and 1.5% in 2020
- Business investment is expected to remain weak, with growth of 1.0% in 2018, 1.2% in 2019, and 1.4% in 2020
- We now anticipate interest rates rising to 1.25% by the end of the forecast period, with rate rises expected in Q1 2019 and Q2 2020.