The British Chambers of Commerce (BCC) has this week slightly downgraded its growth expectations for the UK economy, forecasting GDP growth for 2018 at 1.3% (from 1.4%).
If realised, this level of growth will be the weakest calendar year growth since 2009, when the economy was in the throes of the global financial crisis.
The BCC has also downgraded its GDP growth forecast for 2019 from 1.5% to 1.4%.
The downgrades have been largely driven by a more lacklustre outlook for consumer spending, business investment and trade.
While real wage growth has returned to positive territory, the UK’s leading business group does not expect this to translate into materially stronger spending over the forecast horizon, with weak productivity expected to limit the extent to which wages will increase, and household finances are likely to remain stretched amid historically low household savings and high debt levels.
Business investment growth is expected to slow in 2018 to 0.9%, from 2.4% in 2017. The high upfront cost of doing business in the UK and the ongoing uncertainty over the UK’s future relationship with the EU is expected to continue to stifle business investment.
The UK’s net trade position is expected to weaken over the next few years by more than expected in the previous forecast. Exporters will struggle to recover the ground lost in the year so far, as growth in key markets moderates.
Growth in service sector output, a key driver of UK GDP growth, is expected to slow to 1.2% in 2018, which would be the weakest outturn since 2010. Consumer-focused industries such as retail and hospitality are expected to remain under the most pressure amid weak consumer spending.
If realised, the forecast suggests the economy is in a torpor, with uncertainties around Brexit, interest rate rises, and international developments such as a possible trade war and rising oil prices, all having an impact.
The BCC urges the government to focus as much as possible on the domestic business environment, reducing the uncertainty that firms face, and take action on skills shortages and poor mobile connectivity, which lower productivity and hold UK businesses back.
Suren Thiru, Head of Economics at the British Chambers of Commerce, added: “While the bad weather had a demonstrative impact on the economy in Q1 2018, the latest outlook suggests that the loss of momentum suffered by the UK in the first quarter is more than just a temporary soft patch, with UK growth forecast to remain well below its historic average for the foreseeable future unless action is taken.
“The downgrades to our forecast reflect a broad-based weakening in the outlook for key areas of the UK economy including consumer spending, business investment and trade. Consumer spending is expected to be more subdued over the near term from a combination of sluggish real wage growth and stretched household finances.
“Trading conditions for UK exporters are expected to become more challenging over the forecast period as growth in key markets start to moderate. Against this backdrop, the case for sustainable increases in interest rates continues to look rather weak.
“While Brexit uncertainty and the weakness in sterling have weighed on overall UK growth, it is the failure to deal with the longstanding structural issues from weak productivity to the deep imbalances in the UK economy that continue to undermine the UK’s growth potential.
“The risks to the outlook are on the downside. A messy departure from the EU would likely slow UK GDP growth further over the medium term.
“The prospect of an escalating trade war is now a key downside risk to our forecast as it could mean much weaker export and business investment growth than implied by the current forecast.”