28th August 2014
Leading business lobby the British Chambers of Commerce (BCC) has warned that the UK needs to invest and export more to ensure “the stellar 2014 growth is not a flash in the pan”.
The business group, which represents thousands of companies across the country, has upgraded its economic growth forecasts for this year and 2015. It now anticipates that gross domestic product – GDP – will rise from 3.1% to 3.2% in 2014 but then ease back to 2.8% in 2015, up from a previous estimate of 2.7%. Its expectation for 2016 remains unchanged at 2.5%.
With expected growth of 3.2%, 2014, it would be the first year since 2007 that growth will have exceeded 3%. The BCC said that while 2014’s hike is largely due to stronger employment figures and higher expected growth for the second half of the year, than it previously predicted in May, it added that the anticipated slowdown in 2015 and 2016 reflects a deceleration in household consumption and falling public spending as a share of GDP.
BCC Director General John Longworth has labelled the expected easing a “warning sign” for the UK economy, which he asserted is currently too reliant on consumer spending as a growth driver.
The group also slashed its expectations for exports and services in 2014 from 1.9% to 0.8%, while it expects a milder 4.2% to 4.1% drop for 2015.
Longworth said: “The task at hand is to ensure that the stellar 2014 growth is not a flash in the pan. We need to invest and export more, innovate, and build. It is disappointing that we have downgraded export growth for the next two years as a strong international trade performance is key if we are to steer away from a reliance on consumer spending.
“While business investment is forecast to grow strongly over the next three years, it will be growing from a low base.”
Longworth went on to caution that in order to sustain investment momentum into the future, the government and the Bank of England need to give businesses the confidence they need to invest by keeping official interest rates low for as long as possible. “Any future rate rises must be gradual and modest,” he added.
It still expects the first increase in official interest rates, to 0.75%, to happen sometime in the first three months of 2015.
Longworth urged that the UK must aim higher than accepting growth rates that simply go back to where they were before the recession, or worse – fall even lower. He said: “We have a wealth of impressive and enterprising businesses in the UK, and there is no reason why a 3% growth rate should be the height of our ambitions.”
David Kern, chief conomist at the BCC, added: “The UK recovery remains on course and we are now outperforming other major economies. But many potential obstacles remain up ahead. Geo-political uncertainties such as Ukraine and the Middle East and sluggishness in the eurozone will remain serious challenges for some time. It is therefore doubly important to address the risks that we can tackle, such as the UK’s huge current account deficit. To continue driving the recovery, businesses need a stable and supportive environment that encourages enterprise, with low interest rates.”
According to official numbers from the Office for National Statistics the UK economy expanded by 0.8% in the three months to the end of June this year, which not only represents the sixth consecutive quarter of GDP growth but also means the UK economic output has finally surpasses pre-crisis peak.