The British Chambers of Commerce (BCC) today downgraded its growth expectations for the UK economy and Brexit uncertainty is largely to blame. Anna Tobin reports
In its Quarterly Economic Forecast for Quarter One 2019, the BCC dropped it forecast growth for the UK economy to 1.2%, down from 1.3%. If realised, this would be the UK’s weakest growth in a decade. It also downgraded its UK growth forecast for 2020 to 1.3%, down from 1.5%. In addition to this, the BCC forecasts business investment will fall by 1% in 2019. If realised, this would be the weakest out-turn since the 2009 financial crisis. Continued Brexit uncertainty and slower expected global economic growth have driven these downgrades.
Net trade is expected to make a negative contribution to GDP growth this year. This is a result of the lack of clarity on the UK’s future trade arrangements, weaker global growth and continued trade tensions. This forecast is made on the basis of a Withdrawal Agreement with the EU being reached, if this doesn’t materialise this will be reflected in future forecasts.
“The downgrades to our near-term growth outlook are a further indication that the UK economy is set to remain on a historically weak growth trajectory for some time to come, unless decisive action is taken,” warns Suren Thiru, head of economics at the BCC. “Brexit uncertainty, the financial squeeze on business and consumers and a slowing global economy are expected to weigh significantly on business investment and trade and limit the extent to which consumer spending will be boosted by stronger real wage growth. The broad nature of the headwinds facing the UK economy is likely to be reflected in widespread weakness across all the main sectors, leaving the UK more exposed to sudden shifts in the economic conditions.
“The significant costs, diversion of resources and loss of business that many firms have had to incur to protect themselves against a possibility of no-deal Brexit and the lack of clarity over the UK’s future relationship with the EU is likely to limit the expected improvement in economic output as Brexit uncertainty eases.
“While heightened uncertainty looms over the near-term outlook for the UK economy, the risks to the forecast remain firmly on the downside. A messy and disorderly exit from the EU would materially increase the probability of the UK slipping into recession, particularly if global economic conditions continue to soften.”
Adam Marshall, director general of the BCC, added: “It is clear that political inaction has already had economic consequences, with many firms hitting the brakes on investment and recruitment decisions as a result of ongoing uncertainty. Worse still, some companies have moved investment and growth plans as part of their contingency preparations. Some of this investment may never come back to the UK.
“The economy is currently growing sluggishly at best, but a messy and disorderly exit from the EU would do real and lasting damage to the UK’s economic prospects. A clear course of action on Brexit is needed from Government, and greater levels of planning and guidance to prepare its own agencies and communities for all possible outcomes.
“Once no deal on March 29 has been averted, the attention and energy of both Westminster and Whitehall must return to the UK growth agenda. For too long Brexit has distracted from efforts to remove barriers to growth at home, including critical skills gaps, ageing physical and digital infrastructure systems, and high costs in the business environment. If the UK economy is to have a shot at escaping a Brexit-induced black hole, practical growth issues here at home need to be tackled urgently.”