The British Chambers of Commerce today downgraded its growth forecast for the year, predicting that the UK economy will contract by 0.4%. It had previously forecast growth of 0.1% in 2012.
In its Quarter 3 economic forecast, the BCC also revised down next year’s growth forecast, slashing its prediction from 1.9% to 1.2%.
David Kern, the group’s chief economist, said anecdotal reports from local chambers of commerce did not support hopes that the London Olympics had provided a major boost to growth this summer.
‘We assume positive UK growth of 0.5% in Q3 2012, 0.3% in Q4 2012, and a gradual improvement during 2013 and 2014. But the UK economy will face major obstacles over the next few years.’
Kern added that the fiscal deficit remained ‘unacceptably high’, and said any attempt to abandon the deficit-cutting strategy risked jeopardising the UK’s AAA credit rating.
The BCC expects borrowing to overshoot the Office for Budget Responsibility’s March predictions by between £14bn and £17bn in each year until 2015. ‘Meeting the fiscal mandate of eliminating the structural current deficit will probably take two to three years longer to complete than envisaged last March,’ Kern said.
Government should put in place a ‘new model economy’, taking immediate action to bolster business confidence, while maintaining it’s deficit-cutting course, the BCC said.
Director general John Longworth called for ‘a strong push to improve business access to finance and unlock massive private funding to renew Britain’s infrastructure’.
He said: ‘Success with require both the government and the Bank of England to use their balance sheets – both to invest and for securitisation – at a time when Britain has both market credibility and rock-bottom borrowing costs.
‘Politicians need to get some political backbone and show leadership.’
The BCC’s revised forecast comes the day after the CBI also cut its growth projection for this year from 0.6% to 0.3%. The business lobby expects growth to ‘pick up pace’ next year, but has revised its 2013 growth predictions down from 2% to 1.2%.
‘Underlying growth will return to the economy later in the year than previously expected, with a somewhat better outlook next year,’ said CBI director general John Cridland.
‘However, euro area uncertainty, and the looming “fiscal cliff” of spending cuts and tax increases in the US will only add to the sense of unease during the coming months.’
