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British Chambers of Commerce forecasts challenges to UK economic growth in 2017

Xinhua, December 13, 2016 Adjust font size:

Growth in the UK economy in 2016 is set to be stronger than thought, but the momentum is unlikely to be maintained into 2017, the British Chambers of Commerce (BCC) forecast on Monday.

The BCC, the industry representative body with member firms which employ around 5 million workers, increased its forecast for growth in 2016 to 2.1 percent, from 1.8 percent in the previous quarterly forecast in September.

The improvement in the forecast is supported by better-than-expected growth figures for the third quarter of this year, with growth recorded at 0.5 percent.

However, the forecast growth figure for 2017 was reduced to 1.0 percent from 1.1 percent, well below the trend UK growth of 2-2.5 percent. It would also be the lowest annual growth since the financial crisis, if it is correct.

The expected negative effects of the Brexit vote have not been felt by businesses as yet, with some benefiting from a sharp reduction in sterling on foreign exchange markets in the wake of the June 23 vote.

Suren Thiru, BCC head of economics, said "We have upgraded our growth forecasts for 2016 and 2017, but the near-term outlook for the UK economy remains challenging, with the recent resilience in growth expected to weaken."

"Higher inflation and continued uncertainty over Brexit will weigh on the UK's growth prospects, with consumer spending and business investment likely to be hardest hit. Average earnings should hold steady but inflationary pressures are expected to erode real wages, which will hit the spending power of households," Thiru analyzed.

Inflation is forecast to rise from the current 0.9 percent (latest figures, for October) to 2.1 percent next year and 2.8 percent in 2018.

As a result, higher inflation is expected to curb household consumption, the current main driver of growth, and GDP in 2018 is forecast to grow by 1.4 percent, down from 1.8 percent forecast in the last quarterly report.

In addition, lower levels of business investment are now expected, as firms react to the uncertainty of the Brexit process.

Adam Marshall, BCC director general, said "In the absence of a clear road ahead, many companies have been adopting a 'business as usual' approach in the months since the referendum, which has kept conditions buoyant this year and prevented a sharp slowdown in growth."

Marshall said some firms see significant opportunities over the coming months, but others have identified increasing uncertainty, which is weighing on investment expectations and forward confidence.

"Lower sterling and rising inflation are now starting to affect business communities and consumers. While a lower pound is a boon for some exporting businesses, many others see the latest devaluation of sterling less positively, as they are unable to benefit from it," Marshall added. Enditem