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.’
Think tank the Resolution Foundation has suggested that the UK economy is on course for ‘the longest period of falling living standards since records began’.
In its post-Budget analysis, the Foundation stated that the current squeeze on incomes will last longer than the one that occurred following the 2008 recession.
The Resolution Foundation also stated that Chancellor Philip Hammond is faced with ‘grim economic forecasts’, following the recent publication of a fiscal and economic outlook by the Office for Budget Responsibility (OBR).
In its report, the OBR revised down its outlook for productivity growth, business investment and Gross Domestic Product (GDP) growth across the forecast period. It reduced its 2017 growth forecast from 2% to 1.5%, and predicted that growth will subsequently pick up to 1.6% by 2022.
Commenting on the Resolution Foundation’s analysis, Torsten Bell, its Director, said: ‘Faced with a grim economic backdrop, the Chancellor will see this Budget as a political success. But that would be cold comfort for Britain’s families given the bleak outlook it paints for their living standards.
‘Hopefully the OBR’s forecasts prove to be wrong because, while the first sentence of the Budget document reads ‘the United Kingdom has a bright future’, the brutal truth is: not on these forecasts it doesn’t.’
Meanwhile, commenting on the ‘grim forecasts’, the Chancellor stated: ‘The challenge for us as a nation is to prove them wrong.’
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’.
Chancellor Philip Hammond has announced that he will deliver the Autumn Budget on Wednesday 22 November.
The Autumn Budget will be the second Budget to be delivered this year, and will set out the government’s plans for the UK economy, based on forecasts from the Office for Budget Responsibility (OBR).
It will also outline any tax changes and spending plans for the new tax year.
Mr Hammond stated that the government intends to set its thinking on ‘how to keep the economy strong and resilient and fair’ in order to create ‘an economy that works for everyone’. The Chancellor recently told the Economic Affairs Committee that the UK economy has been ‘overshadowed by the uncertainty of the Brexit negotiation process’.
The 2017 Autumn Budget will be the first of its kind under the government’s new fiscal timetable: during the 2016 Autumn Statement, the Chancellor revealed that the annual Budget will now take place in the Autumn, as opposed to Spring.
Going forwards, Mr Hammond will make a Spring Statement each year, responding to a forecast produced by the OBR.
The first Spring Statement will be delivered in 2018.
A report published by the Institute for Public Policy Research (IPPR) has suggested that the UK’s economic model requires ‘radical reform’.
Living standards for the ‘majority of the population’ are no longer rising, the IPPR’s Commission on Economic Justice discovered. It also found that the UK is in the midst of the ‘longest period of earnings stagnation for 150 years’, with young people set to be ‘poorer than their parents’.
Productivity in the UK is 13% below the average for the richest countries in the G7, the report highlighted.
In addition, a ‘fiscal gap’ is growing between tax revenues and expenditure, which the IPPR believes will worsen as workers age and the proportion of employees declines.
The IPPR stated that the British economy needs ‘fundamental reform’, and has called for a debate on taxation, the role of the UK’s financial sector, the dominance of digital companies in their marketplace and the power held by UK trade unions.
Tom Kibasi, Director of the IPPR and Chair of the Commission, commented: ‘The British economy needs fundamental reform. We don’t have a British economic model. We have an economic muddle. The persistent economic problems we have experienced since the 2008 financial crash won’t be fixed with a bit of tinkering.
‘There is a growing consensus across business, trade unions and civil society that a radical new approach is now needed. Change should be guided by a new vision for the economy, where long-term prosperity is joined with justice for all.’
A survey carried out by the Recruitment and Employment Confederation (REC) has suggested that employer confidence in the UK economy has moved into negative territory as a result of ongoing Brexit and political uncertainties.
The REC’s JobsOutlook Survey, which polled 601 UK employers, revealed that employer confidence has fallen from +6% in July to -3 this month.
It found that 31% of employers expect the UK economy to worsen, and just 28% expect it to improve.
In addition, 40% of employers interviewed stated that they have ‘no spare capacity’, and would need to recruit to meet additional demand. Many of those surveyed also expressed concerns over a ‘lack of appropriate candidates’ for construction jobs.
Kevin Green, Chief Executive of the REC, stated: ‘Businesses are continuing to hire to meet demand, but issues like access to labour, Brexit negotiations and political uncertainty are creating nervousness.
‘The jobs market is in a good place but employers will only continue to hire and invest if they feel assured about the future.’
The Bank of England (BoE) has warned that a significant rise in personal debt could ‘pose a danger to the UK economy’.
The Bank revealed that car loans, credit card balance transfers and personal loans have increased by 10% over the past year, whereas household incomes have risen by just 1.5%.
High street banks are at risk of entering a ‘spiral of complacency’ during a period of good economic performance and low loan issues, the BoE also suggested.
It warned that as the spiral continues, borrowers risk accumulating ‘more and more’ debt.
The BoE stated that it may urge banks to implement further safeguards against the risk of bad debts.
Commenting on the rise in personal debt, Alex Brazier, Financial Stability Director at the BoE, said: ‘Household debt – like most things that are good in moderation – can be dangerous in excess. Dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy.’