GDP growth is forecast to slow from 1.3% in 2019 to 1% in 2020, the smallest increase since 2009, finds the latest British Chambers of Commerce (BCC) economic forecast. Anna Tobin reports
Although the 1% GDP growth forecast for 2020 is a slight upgrade on the BCC’s previous forecast of 0.8% growth, if it materialises the UK economy will have experienced its second weakest decade of average annual GDP growth on record. The GDP forecast for 2021 is 1.3%, up from a previous forecast of 1.2%.
Expected higher Government spending is what has driven the slight upgrades. As tax revenue is expected to weaken as the economy slows, however, a rise in Government spending is forecast to come at the cost of higher borrowing. UK public sector net borrowing is forecast to be £83.4 billion higher over the next three years than predicted by the Office for Budget Responsibility at the 2019 Spring Statement.
Brexit uncertainty is expected to continue to weigh on investment decisions and business investment is forecast to contract by 1% in 2019 and by a further 0.7% in 2020.
“Our forecast points to several years of anaemic activity in the UK economy unless decisive action is taken,” commented Suren Thiru, head of economics at the BCC. “An expansion in Government spending is likely to give a nudge to the UK economy, whoever wins the General Election. However, a slowing global economy and unrelenting political uncertainty are expected to weaken business investment, trade and consumer spending, limiting the UK’s growth trajectory.
“Increased public spending where the objective is to strengthen growth and productivity can help support the UK economy in the near term. However, a sluggish economy could restrict the UK’s capacity to collect enough tax revenue to deliver a marked boost in public spending. Under such conditions significant and sustained Government borrowing could leave the UK more exposed to economic shocks.
“The downside risks to the UK’s economic outlook remain concerningly high. Worsening global trends and uncertainty over the course of Brexit present real dangers for the UK economy. More uncertainty in the aftermath of the General Election and a persistent lack of clarity on the UK’s future trading relationships could also result in more muted growth.”
Adam Marshall, director general of the BCC, added: “The needs of business have been glossed over in the General Election campaign, and our latest forecast shows the danger of allowing this to continue.
“As soon as the smoke clears from the election battlefield, economic growth must be put front and centre again in Westminster. No incoming Government can deliver its promises to the electorate without healthy and thriving business communities – or without a clear and detailed plan for the UK’s future relationship with the EU.
“As long as businesses are held back by Brexit uncertainty, high up-front costs, skills gaps, and poor infrastructure, we can expect growth to be mediocre, at best. At this critical moment, details matter. An incoming Government needs to get both the signals and the substance right – and give companies the confidence to invest.”