BCC: “UK growth forecasts downgraded as ongoing uncertainty over Brexit hits investment and trade”
The British Chambers of Commerce (BCC) has downgraded its growth expectations for the UK’s economy, forecasting GDP growth for 2018 at just 1.1% (down from 1.3%). The BCC has also downgraded its GDP growth forecast for 2019 from 1.4% to 1.3%. The latest forecast implies that, by 2020, the UK’s economy will have experienced its second weakest decade of average annual GDP growth on record.
The downgrades to the BCC’s forecast for GDP growth in 2018 and 2019 have been largely driven by a weaker outlook for trade and investment. Exporters face more subdued growth given continued Brexit uncertainty and the expected slower growth in key markets. As a direct consequence, net trade is expected to make a negative contribution to GDP growth over the forecast period.
The outlook for investment is more subdued than in the BCC’s previous forecast, with persistent economic and political uncertainty expected to increasingly weigh on investment intentions. Business investment growth is expected to be weaker across the forecast horizon than in the BCC’s Q2 forecast. The high up-front cost of doing business in the UK and the ongoing uncertainty over the UK’s future relationship with the EU are expected to continue to stifle business investment.
The labour market is expected to continue to be a source of strength for the economy, with the unemployment rate forecast to remain close to its record low. However, in such a tight labour market, businesses will continue to face significant skills gaps, in turn undermining their potential to grow. At the same time, workers are unlikely to experience meaningful real wage growth as the gap between pay and price growth is forecast to remain negligible.
If realised, the leading business organisation’s latest forecast suggests that the UK’s economy will remain lethargic. Brexit uncertainty and the ongoing failure to fix domestic fundamentals – stronger labour supply and digital and physical connectivity, etc – are “hurting” the UK’s growth prospects. To bolster stronger growth, the Government must provide precision on the nature of any future relationship with the EU and answer the practical questions that firms have. A ‘messy’ and ‘disorderly’ Brexit will only add to the uncertainty that already exists.