Growth revised down because of austerity plan

6 Dec 10
The British Chambers of Commerce today downgraded its economic growth forecast for next year.

By Lucy Phillips

6 December 2010

The British Chambers of Commerce today downgraded its economic growth forecast for next year.

The group, which represents business leaders, reduced its expectations for UK gross domestic product growth in 2011 from 2.2% to 1.9%. Its prediction for growth in 2012, however, was raised from 1.8% to 2.1%.

The BCC attributed the downward revision to the negative impact of the government’s austerity plan, which it claimed would be ‘initially more serious than previously envisaged’. Worsening debt in the Eurozone would dampen UK growth prospects while the housing sector was increasingly fragile.

But longer-term economic growth prospects were stronger because of greater evidence of a ‘rebalancing’ towards the private sector.

BCC director general David Frost said deficit reduction on its own would not bring about a sustainable recovery and that there must be a ‘relentless focus’ on supporting businesses.

‘British business is willing and able to drive the recovery. But it can only do so if the government will back its words with deeds. Promoting stronger economic growth should be the government’s main priority next year and beyond.’  

BCC chief economist David Kern added that the economy appeared ‘sufficiently robust’ enough to avoid dipping back into recession.

The group also expect the government’s deficit reduction plan to work as intended, with public sector net borrowing falling from 10% of GDP in 2010/11 to 5.8% of GDP in 2012/13.    

Last week the BCC accused the government’s independent fiscal watchdog for being ‘too optimistic’ in its forecasts from 2011, even after a downgrading of estimates. In its latest report, the Office for Budget Responsibility revised down its growth predictions from 2.3% to 2.1% next year and from 2.8% to 2.6% in 2012. 

New OBR chair Robert Chote will be quizzed about this forecast by the Treasury Commons select committee this afternoon.  

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