EconomyJun 18 2018

UK set for weakest growth year since financial crisis

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UK set for weakest growth year since financial crisis

The UK economy is expected to have the weakest growth level since 2009, as the British Chambers of Commerce (BCC) slightly downgraded its forecast of a GDP growth for 2018 to 1.3 per cent – previously at 1.4 per cent.

The trade body has also revised its GDP growth forecast for 2019 from 1.5 per cent to 1.4 per cent.

The downgrades have been largely driven by a more lacklustre outlook for consumer spending, business investment and trade.

While real wage growth has returned to positive territory, the BCC doesn't expect this to translate into materially stronger spending over the forecast horizon.

Weak productivity is expected to limit the extent to which wages will increase, and household finances are likely to remain stretched amid historically low household savings and high debt levels, the chambers stated.

Business investment growth is expected to slow in 2018 to 0.9 per cent, from 2.4 per cent in 2017.

The high upfront cost of doing business in the UK and the ongoing uncertainty over the UK's future relationship with the European Union are expected to continue to stifle business investment.

The UK's net trade position is expected to weaken over the next few years by more than expected in the previous forecast.

Exporters will struggle to recover the ground lost in the year so far, as growth in key markets moderates.

Growth in service sector output, a key driver of UK GDP growth, is expected to slow to 1.2 per cent in 2018, which would be the weakest output since 2010.

Consumer-focused industries, such as retail and hospitality, are expected to remain under the most pressure amid weak consumer spending.

According to Adam Marshall, the chamber's director general, this forecast "should serve as a wake-up call to government - as it demonstrates that 'business as usual' is not an option when it comes to the economy". 

He said: "With firms facing ongoing Brexit uncertainty, increasing global protectionism and instability in some parts of the world that will impact on costs and profits, now is the time for more robust action to support business confidence and investment. 

"Brexit cannot be Westminster's only priority. Businesses across the country want to see far more urgency around fixing the fundamentals here at home and a concerted effort to lower the high costs of doing business. 

"The next few years are set to be a testing time for business in the UK. What firms and their employees need is much more visible evidence that ministers are committed to getting the basics right - which would enable business in turn to invest, take risks and grow."