The British Chambers of Commerce (BCC) has downgraded its economic forecast for the next three years, citing ‘sluggish’ business investment and household consumption.
In a new report, the business group downgraded its growth expectation for 2017 from 1.6% to 1.5%, and from 1.2% to 1.1% for 2018. Additionally, it now expects the UK economy to grow by 1.3% in 2019, a slight downgrade from its previous forecast of 1.4%.
The BCC also predicts that inflation will peak at 3% during the final quarter of this year, outpacing earnings until 2019.
It is urging the government to ‘fix the fundamentals’ of the UK economy over the coming year. The government must also look to ‘answer the practical questions’ in regard to Brexit and trade, in order to provide UK businesses with clarity, the BCC stated.
Commenting on the BCC’s forecasts, Dr Adam Marshall, its Director General, said: ‘Despite pockets of resilience and success, and strong results for some UK firms, the bigger picture is one of slow economic growth amid uncertain trading conditions.
‘Brexit uncertainty still lingers over business communities, and is undermining many firms’ investment decisions and confidence.
‘While the recent Budget made some welcome steps in the right direction, concerted and sustained action to fix the fundamentals is needed to encourage business investment and growth.’
The Confederation of British Industry (CBI) has stated that economic growth in the UK is on course to remain ‘steady, but subdued’ over the next couple of years.
The business group said that 2017 has seen ‘tepid growth’, and predicts that Gross Domestic Product (GDP) will grow at a rate of 1.5% in 2017, 1.5% in 2018 and 1.3% in 2019.
It also predicts quarterly GDP growth of 0.3% up to the end of 2019.
Commenting on the forecasts, Rain Newton-Smith, Chief Economist at the CBI, said: ‘After a timid 2017, UK economic growth is set to remain steady but sluggish, with less pep than we’ve seen over the past few years.
‘We expect domestic demand to remain soft. Household spending will remain under pressure from squeezed real wages and Brexit uncertainty will weigh on business investment.’
The CBI called for the government to make progress in its Brexit negotiations with the EU, and urged for clarity in regard to transitional arrangements.
A study carried out by think tank the National Institute of Economic and Social Research (NIESR) has suggested that the Brexit referendum has ‘cost UK households over £600 per year’.
The NIESR stated that the Brexit vote caused sterling to depreciate, resulting in sluggish economic growth. The vote also contributed to a fall in living standards.
The think tank has now downgraded its growth predictions for the UK economy for this year and for 2018: the NIESR anticipates the economy to grow by 1.5% both this year and next year. These predictions are based on the prospect of the UK experiencing a ‘soft Brexit’, and do not take into account the effects of a ‘hard Brexit’.
The NIESR’s new predictions come in the wake of a ‘strengthening and broadening’ global economic recovery.
Garry Young, Director of Macroeconomic Modelling and Forecasting at the NIESR, commented: ‘It is almost certain that the relative deterioration in the UK economy and the accompanying fall in living standards over the past year are a consequence of the vote by the British people to leave the EU.
‘Had sterling not depreciated and the economy continued to grow at its previous rate, as would have been likely with an improving global backdrop, real household disposable income per head might have been more than 2% higher than now, worth over £600 per annum to the average household.’
Mr Young also called for Chancellor Philip Hammond to ‘make full use of the fiscal space available within the existing rules to accommodate any continued weakness in productivity’ in the upcoming Autumn Budget. He added that the government has ‘scope to relax fiscal austerity, whilst maintaining a long-term fiscal discipline’.
In its Autumn Budget submission, the Federation of Small Businesses (FSB) has urged Chancellor Philip Hammond to refrain from introducing business tax increases for UK firms in his Budget speech.
The FSB also called on the Chancellor to maintain investment incentives, such as Entrepreneurs’ Relief (ER), the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).
In regard to Brexit, the Federation has called for the government to ensure that ‘no nation or region in the UK loses out after 2019’, and has recommended the introduction of exporting vouchers for small businesses who trade overseas.
The FSB believes that such vouchers would give prospective UK exporters the freedom to invest in the resources they need to start selling overseas.
Commenting on the FSB’s Autumn Budget wishlist, Mike Cherry, National Chairman of the Federation, said: ‘With the Brexit clock ticking, other nations are trying to tempt our businesses to their shores. The Budget marks an opportunity to position the UK as the best place in the world to invest in innovative firms.
‘If the Chancellor is serious about tackling the staggering disparity in productivity between different areas of the UK, he should replace EU funding according to existing allocations. No region or nation should lose out as a result of Brexit.’
The Chancellor will deliver the Autumn Budget on Wednesday 22 November. Make sure you keep an eye on our website for coverage of the key announcements.
A ‘hard Brexit’ could cost the UK up to £400 billion by 2030, a study carried out by Rabobank has suggested.
18% of Gross Domestic Product (GDP) growth could be lost by 2030 if the UK leaves the EU without a trade agreement. The study also suggested that British residents could be out of pocket to the tune of £11,500 as a result of a hard Brexit.
The bank analysed the consequences of three separate Brexit scenarios, including where Britain leaves the EU with a trade agreement, where it leaves without a trade agreement and where it obtains a so-called ‘soft Brexit’ and leaves the Single Market, but not the customs union.
If the UK leaves the EU without a trade deal in 2019, Britain could enter a two-year recession, and GDP would fall to 2.4%, Rabobank suggested.
However, a recession would be inevitable. If Britain leaves with an agreement, or experiences a soft Brexit, then a ‘milder and much more short-lived’ recession would take place.
Hugo Erken, Senior Economist at Rabobank, commented: ‘By looking at dynamics such as innovation, competition, knowledge and human capital, how they will change and what effects this will have on the structural makeup of the UK and European economy, our research shows that the long-lasting impact of Brexit is likely to be more severe than initially anticipated.’
A survey carried out by the Institute of Chartered Accountants in England and Wales (ICAEW) has suggested that the number of businesses declaring insolvency could potentially rise as a result of the impact of Brexit on the UK economy.
The survey revealed that 73% of individuals working in the insolvency and business restructuring industry believe that Brexit poses the ‘biggest threat’ to businesses over the coming years. Meanwhile, 56% of those surveyed also believe that a rise in interest rates presents a risk to UK businesses.
The survey suggested that the retail sector could be the worst affected by insolvency, with 77% of respondents believing that it would be the sector most likely to experience ‘increased financial difficulty’.
Affected firms should seek early help in a bid to restructure their finances, business processes or management, the ICAEW stated.
Reflecting on the issue, Bob Pinder, Regional Director at the ICAEW, said: ‘We are in no doubt that businesses in the UK face difficult times ahead. A sharp and unexpected rise in the cost of doing business can make managing liquidity tough.
‘We believe that a change in attitudes is critical in order to successfully avoid substantially increased corporate insolvencies – confronting business issues, rather than being ashamed of them.’
More than 100 UK businesses have signed a letter to the Brexit Secretary, David Davis, urging him to ensure that ‘urgent progress’ is made in the next round of Brexit talks.
The letter calls for Mr Davis to make sure that transitional arrangements are secured.
Signatories of the letter represent ‘businesses of all sizes, sectors and regions of the UK’, and have responsibility for over 500,000 jobs in the UK and 600,000 jobs in the EU.
In the letter, the businesses state that they need to make investment and employment decisions now that will have consequences for economic growth and jobs in the future.
The businesses affirm that, until transitional arrangements can be agreed upon, the risk of the government failing to secure a Brexit deal ‘remains real’. The firms therefore want ‘substantive progress’ to be made in the upcoming negotiations.
Commenting on the issue, Carolyn Fairbairn, Director General of the Confederation of British Industry (CBI), said: ‘Businesses are deeply concerned about Brexit and getting more so by the day. Not about the fact that Britain’s exit from the EU is happening – they’re fully committed to making it work. The concern is how we do it.
‘The top priority is to open talks on a ‘status quo’ transition for business, lasting two to three years. That will clear a path to discussing the main prize: trade between the UK and the rest of the EU.’
The letter can be read in full here.