Via The Guardian : British Chambers of Commerce more than halves GDP growth prediction for next year to 1%, citing post-referendum uncertainty
Britain’s economy will grind to a near standstill over the coming months as post-referendum uncertainty triggers a slump in business investment, a leading business group has warned as it slashed its growth forecasts.
In its first set of forecasts since the vote to leave the EU, the British Chambers of Commerce (BCC) on Monday more than halved its GDP growth prediction for next year from 2.3% to 1.0%. That would mark the worst economic performance since 2009, when the UK was emerging from a deep recession sparked by the global financial crisis.
Recent economic indicators suggest activity has rebounded from an initial post-referendum dive but the BCC’s gloomy outlook shows that businesses remain nervous about the prospect of protracted negotiations to leave the EU and about potential trade deals.
The confidence of the business community was dealt another blow over the weekend as it emerged Liam Fox, the international trade secretary, had launched an extraordinary attack on British executives, suggesting they would rather play golf than export their goods and services.
Asked about Fox’s description of a Britain that had grown “too lazy and too fat” on earlier successes, BCC president Francis Martin called for politicians to support businesses as the country works out its EU exit.
“Business and government need to work together if we’re to make a success of the transition ahead,” said Martin. “Business people don’t mind a robust conversation, but they will insist on a constructive one.”
The business group’s new forecasts put it broadly in line with the Bank of England, which also sees a sharp slowdown in GDP growth next year to just 0.8% from 2% this year.
The Bank has already cut interest rates to a record low of 0.25% and expanded its programme to pump electronic cash into the economy. It is widely expected to cut base rates again, to 0.1%, before the end of the year. But no move is anticipated when its policymakers meet this week, according to a Reuters poll of economists.
The BCC is cautioning against reading too much into recent signs of a bounceback in output for manufacturers and services firms, a pick-up in exports and a steadying in construction work.
“Although individual businesses continue to report strong trading conditions, the overall picture suggests a sharp slowdown in UK growth lies ahead,” said Adam Marshall, the BCC’s acting director general.
“Our forecast suggests that the UK is likely to avoid a recession, but with the health warning that businesses are still digesting the result of June’s EU referendum and the challenges and opportunities to come.”
The group, which represents a network of 52 chambers around the UK, believes the economy will eke out quarterly growth of just 0.1% in the third quarter and again in the fourth quarter. That compares with 0.6% in the second quarter of April to June.
For 2016 as a whole the BCC has downgraded its growth forecast from 2.2% to 1.8%. After growth of 1.0% in 2017, it sees the economy gaining some momentum to grow 1.8% in 2018 – compared with an earlier forecast for 2.4%.
Marshall said a number of uncertainties were weighing on sentiment. “The value of sterling, the shape of future trade relationships, the status of EU nationals in the UK workforce and other factors will all influence business confidence over the coming quarters,” he said.
A large fall in investment, along with weaker consumer spending, was the main reason for the weaker outlook. Business investment is expected to fall by 2.2% in 2016 and by 3.4% in 2017. That compares with previous forecasts for 4.5% growth in 2016 and a 7.4% rise in 2017.
The group predicts some help to the UK’s trading position from a weaker pound, which tumbled against other currencies following the referendum result, making UK goods cheaper in overseas markets.
Businesses are looking ahead to Philip Hammond’s autumn statement on 23 November when the chancellor will set out how the government will use tax and spending plans to help the economy weather the post-referendum turmoil.
Marshall said businesses were relying on ministers to support business investment and confidence. “They should start with the long list of business-boosting infrastructure projects that have been put on hold for far too long – including a firm decision on a new airport runway, new nuclear investment, and road and rail schemes,” he said.
Hopes of more clarity on one such project, the HS2 high-speed rail link, were dented at the weekend as its boss, Simon Kirby, announced he was leaving to join Rolls-Royce. The transport secretary, Chris Grayling, is expected to make a key decision on the project’s future in the coming weeks.
But business groups have been encouraged by Theresa May’s apparent commitment to reviving investment, innovation and exports with an industrial strategy.
For now most economists – the BCC’s forecasters included – expect the services sector and consumer spending to remain the main driver of UK growth.
Signs of spending holding up well have been one of the main factors behind City analysts toning down their earlier forecasts for a post-referendum slump. But fresh figures on Monday will serve as a reminder that households are still coming to terms with the Brexit vote and its implications.
Consumer spending flatlined in August, rising just 0.1% on the year after growth of 1.6% in July, said Visa. The credit card company’s monthly consumer spending index, compiled by Markit, showed the effects of the weaker pound, which makes Britons’ overseas holidays more expensive.
Kevin Jenkins, the UK and Ireland managing director at Visa, said: “In line with reports that people opted for UK ‘staycations’ over last-minute overseas trips in August, leisure and recreation remained the strongest performers, with transport and communications – the category that captures flight bookings – experiencing a significant fall.”