Business body downgrades forecast for British GDP growth

LONDON, Dec. 11 (Xinhua) -- Industry representative body the British Chambers of Commerce (BCC) has downgraded its forecast for British economic growth from 1.6 percent for this year to 1.5 percent.

Trend growth in the British economy is 2-2.5 percent, but poor productivity and uncertainty over the Brexit outcome is hampering growth. The BCC also cut next year's growth forecast from 1.2 percent to 1.1 percent and for 2019 from 1.4 percent to 1.3 percent.

"The underlying factors are productivity issues, and there is uncertainty out there as well around the impact of Brexit," Suren Thiru, head of economics at BCC told Xinhua on Monday.

Inflation has spiked from 0.5 percent at the time of the Brexit referendum vote in June 2016 to 3 percent now, fuelled by a sharp fall in sterling from 1.48 U.S. dollars to as low as 1.22 U.S. dollars.

This fall has made raw materials more expensive and increased supply chain and import costs.

Thiru said he expected inflation to have risen as far as it will go: "We expect inflation to peak around 3 percent by the end of this year and to fall back slowly over the next couple of years."

He added: "Having said that, we still expect inflation to be higher than wage growth until 2019, and that is going to continue to weigh on consumer spending which is a key driver of economic growth."

Inflation at the current level of 3 percent outpaces a respectable growth in wages, which are rising annually by 2.2 percent, and consumers are feeling the squeeze.

"We expect household consumption to be under pressure from falling wages until 2019," said Thiru.

Growth in consumer spending is expected to slow from 1.6 percent in 2017 to 1.0 percent in 2018, before rising to 1.3 percent in 2019.

Brexit uncertainties are causing firms to pause in their planning, as they wait for clarity before committing to new projects or upgrading plant and machinery.

Thiru said: "We expect investment to be fairly slow."

Business investment growth has been upgraded from 0.4 percent to 2.1 percent for 2017 as a result of revisions to official data, but is expected to slow to 0.8 percent in both 2018 and 2019.

The manufacturing sector now stands out as an area of strong growth, and Thiru forecast it would continue to do well into 2018.

Thiru said: "We believe the manufacturing sector is doing very well, it is in a sweet spot. We still expect the global economy to boost exports." Enditem