The British Chambers of Commerce (BCC) has this week slightly upgraded its UK growth forecast for 2017 from 1.4% to 1.5%.
Our expectations for growth in 2018 and 2019 remain unchanged at 1.3% and 1.5% respectively – well below historical averages.
Despite slower than expected growth in the first quarter of 2017, we believe prospects for the rest of the year are brighter, mainly because of a stronger global outlook in key markets for UK businesses.
The weakness of sterling is likely to boost export activity this year.
Rising inflation is anticipated to remain a key concern for businesses and consumers. We expect it to peak at 3.4% this year, a five-year high, before falling back to 2.8% in 2018 and 2.5% in 2019.
While we have slightly upgraded our outlook for 2017, our current forecast points to several years of subdued activity in the UK economy.
Our latest forecast is that the first increase in UK interest rates, to 0.5%, will occur in the first quarter of 2018.
With inflation rising and average earnings growth expected to hold steady, wage growth in real terms is likely to remain negative over the next few years.
As a consequence, consumer spending, a key driver of UK growth, is forecast to remain persistently weak over the next few years.
Suren Thiru, Head of Economics at the British Chambers of Commerce, said: “While we have slightly upgraded our outlook for 2017, our current forecast points to several years of subdued activity in the UK economy.
“Higher inflation is likely weigh significantly on the UK’s near-term growth prospects. We expect inflation to rise further over the course of this year as the rising cost of imported raw materials continues to filter through.
“Consumer spending, a key driver of UK economic growth, is expected to slow considerably as inflation erodes real wages.
“Business investment is likely to remain relatively subdued as rising inflation and the escalating burden of upfront business costs weigh on investment intentions. On the upside, 2017 may prove the sweet spot for exporters as they are boosted by the persistent weakness in the value of sterling and an improving outlook for the global economy.”
While the recent election campaign had almost no focus on supporting business, action to boost business confidence and growth remains urgent.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, argues that Government can best promote growth by reducing costs for business.
He said: “Many of the businesses I speak to have expressed cautious optimism, but remain wary about the growth prospects of the UK economy as a whole.
“In the wake of an inconclusive General Election, that wariness is set to increase – as is the sense that the UK economy is merely treading water.
“With inflationary pressures expected to intensify and consumer spending forecast to slow, this outlook is likely to persist in the near term.
“While the recent election campaign had almost no focus on supporting business, action to boost business confidence and growth remains urgent.
“A cross-party consensus must be sought in Westminster in order to create a UK business environment that supports sustained growth and job creation, even as the new government works to secure the best possible Brexit deal.”
He added: “The cost of doing business in the UK is too high – and weighs on the investment, recruitment and growth capabilities of our firms.
“Companies are faced with significant currency fluctuations and rising upfront costs, and their growth efforts are hampered by skills shortages and poor physical and digital connectivity.
“Westminster must come together to tackle these issues.”