UK economy to falter further as Brexit uncertainty bites, says BCC
The British Chambers of Commerce (BCC) has forecast the weakest growth in a decade for the UK in 2019, on the back of Brexit uncertainty.
The BCC said on Monday it has slightly downgraded its growth expectations for the UK economy, forecasting growth of just 1.2 per cent in 2019 (down from 1.3 per cent), which if realised would be the weakest growth in a decade.
It has also downgraded its growth forecast for 2020 to 1.3 per cent (from 1.5 per cent) and published its first forecast for 2021 of 1.4 per cent growth.
A weaker outlook for business investment and trade amid continued Brexit uncertainty and slower than expected global economic growth were the main drivers behind the business group’s downgrades to its forecast for GDP growth in 2019 and 2020, it said.
Business investment is forecast to decline by 1.0 per cent in 2019, which if realised would be the weakest out-turn since the financial crisis in 2009.
Ongoing uncertainty over the UK’s future relationship with the EU is expected to continue to weigh on investment intentions. The diversion of resources to prepare for no deal and the high upfront cost of doing business in the UK is also projected to limit the extent to which investment activity will bounce back over the near term.
Net trade is expected to make a negative contribution to GDP growth over the forecast period, reflecting the lack of clarity on the UK’s future trade arrangements, weaker global growth and continued trade tensions.
While average earnings growth in real terms is set to improve over the forecast period and unemployment is forecast to remain low by historical standards, household spending is expected to be limited by weak consumer confidence and high household debt levels.
Growth in the dominant services sector is expected to weaken to 1.1 per cent in 2019, which would be the slowest growth since 2009. The manufacturing and construction sectors are also expected to grow by less than expected in our previous forecast.
Decisive action required to reverse weak growth trajectory
Responding to the forecast, Adam Marshall, director general of the BCC, said that it is clear that political inaction has already had economic consequences.
"Worse still, some companies have moved investment and growth plans as part of their contingency preparations. Some of this investment may never come back to the UK," Mr Marshall said.
He advised that a clear course of action on Brexit is needed from government, and greater levels of planning and guidance to prepare its own agencies and communities for all possible outcomes.
The head of economics at the BCC, Suren Thiru, judged that the downgrades to the UK's near-term growth outlook are a further indication that the economy is set to remain on a historically weak growth trajectory for some time to come.
"The broad nature of the headwinds facing the UK economy is likely to be reflected in widespread weakness across all the main sectors, leaving the UK more exposed to sudden shifts in the economic conditions," Mr Thiru said.
He added that risks to the forecast remain firmly on the downside.
"A messy and disorderly exit from the EU would materially increase the probability of the UK slipping into recession, particularly if global economic conditions continue to soften," Mr Thiru concluded.