Industry body downgrades UK economic prospects on weak manufacturing figures, poor trade performance

The British economy is likely to grow less quickly next year because of a weak manufacturing sector performance and poor trade figures, industry representative body the British Chambers of Commerce (BCC) revealed on Wednesday.

The BCC's annual Gross Domestic Product (GDP) growth forecast was trimmed from 2.6 percent to 2.4 percent for this year, from 2.7 percent to 2.5 percent next year and from 2.7 percent to 2.5 percent in 2017. The higher forecast figures were all contained in the BCC's previous quarterly forecast.

Suren Thiru, the UK economic adviser with the BCC, told Xinhua: "The downgrade is from the third quarter (figures), and the main cause behind the downgrade has been a weak trade performance, and a weak performance from the manufacturing sector as well."

The service sector, which represents more than 75 percent of the British economy, continues to "power ahead", said Thiru, providing much of the growth.

Global pressures, not least the strength of sterling (currently one pound equals 1.38 euros, up from 1.26 a year ago) were creating headwinds for exporters, said Thiru. The eurozone is the UK's main export market, and despite not being a member of the currency union, the economic problems of the zone's member nations have a significant impact on the UK.

Prospects for next year, were dampened by the expectation that eurozone monetary policy would remain loose, while monetary policy in Britain might start to tighten.

"Given the divergence between the UK economy and some of its major trading partners we expect the strength of sterling to be a major headwind particularly for exporters going into 2016," said Thiru.

Consumer Price Index (CPI) inflation was forecast to remain at its low level of around 0 percent for the next few months before edging up slowly, but would remain below the 2 percent target of the central bank until the middle of 2017. This would give an annual inflation rate of 0.1 percent for this year, 1.1 percent in 2016 and 2 percent in 2017.

WARNING OF UNBALANCED RECOVERY

John Longworth, the director general of the BCC, said that the government's official data was now starting to reflect what the BCC's quarterly economic survey had been showing all year, "that our persistently weak trade performance and current account balance are impacting our overall growth".

The deficit on the current account balance widened in 2014 (the last available official figures) to 92.9 billion pounds (139.6 billion U.S. dollars), the largest annual deficit since records began in 1948.

Longworth said that the manufacturing sector had been hit "badly" by worsening global prospects, and an earlier prediction of growth in 2015 was now an expectation of contraction.

This poor performance from trade and manufacturing exposed the great reliance upon the service sector and domestic consumer demand to deliver economic growth.

Longworth added a warning about relying on the current buoyant state of consumer spending, which has been driving much of the recent economic recovery.

He said: "We cannot rely so heavily on consumer spending to fuel our economy, especially when driven by increased borrowing. We have been down this path before, and know that it leaves individuals and businesses exposed when interest rates do eventually rise." (One pound = 1.50 U.S. dollars) Endit