Business lobby group casts doubt over official UK growth estimates but still supports government plans to reduce deficit
Britain's economy will grow more slowly this year than has been forecast in official estimates, according to the British Chambers of Commerce (BCC), due to a weak first quarter and the impact of bank holidays and the royal wedding. Despite the sluggish performance, the lobby group said that it still backed the government's drastic plans to reduce the deficit, but called for more to be done to help businesses take up the slack caused by cutbacks in the public sector.
In its quarterly report out today, the BCC became the latest body to lower its expectations for the economy, forecasting growth of 1.3% in 2011 and 2.2% in 2012. That compares with its previous predictions of 1.4% and 2.3%, and is below forecasts from the UK government's financial watchdog, the Office for Budget Responsibility, which expects growth of 1.7% this year and 2.5% for 2012.
David Kern, the BCC's chief economist, said: "It is difficult to assess growth in the second quarter because of the volatility of the construction sector and the uncertain impact of the royal wedding. But with the number of days worked in April lower than usual, we expect the net effect will be to slightly reduce GDP growth."
Last week the Organisation for Economic Co-operation and Development downgraded its figures for the UK from 1.7% in 2011 to 1.4%. The Paris based think tank's chief economist Pier Carlo Padoan said that the government might have to slow down its deficit-cutting programme if growth did not improve.
The BCC, however, continued to back the government. David Frost, its director general, said: "Although growth will be slow, the government is right to persevere with its plans to cut the deficit. But this must be balanced with policies that allow business to drive the recovery. The budget was a positive start, but the government has more to do if the private sector is to create new jobs, invest and export, and contribute to a lasting economic recovery in the UK. Without a credible strategy aimed at driving growth, there is a danger the recovery will fizzle out."
But Kern said that although future growth would initially be slow, he did not expect a return to recession and saw the recovery gaining momentum from the fourth quarter onwards. The main drivers of growth over the next two years would be exports and, to a lesser degree, business investment, he said.
With inflation as measured by the consumer price index expected to rise to 4.5% this year, Kern predicted that the Bank of England would begin raising interest rates in August. But he warned: "We believe British businesses will be able to absorb small increases, but the monetary policy committee must act with great caution and must not be too aggressive in its tightening." The BCC also predicted a 150,000 increase in unemployment between now and the middle of next year.
Chris Leslie, shadow treasury minister, seized on the BCC forecasts to warn that cutting too far and too fast would harm the economy.
"Slow growth and more people out of work and on benefits will make it harder to get the deficit down," he said. "We need a plan B that puts jobs and growth first, because getting people off the dole and back into work is the best way to get the deficit down. And instead of giving the banks a tax cut this year, George Osborne should repeat the bank bonus tax to get jobs for young people, build more affordable homes and support small businesses."
The BCC report comes in a crucial week for the chancellor's stewardship of the economy.
Surveys of the manufacturing, services and construction industries could confirm that the slowdown in growth has become entrenched. Osborne has come under fire from right- and left-wing commentators after six months of stagnant growth, stubbornly high unemployment and an inflation rate running at more than double average wage rises.
The housing market is also suffering badly after six months of declining consumer confidence and a credit drought that has preventing first-time buyers from obtaining a mortgage.
Several economists said they expected the surveys to confirm the economy is struggling to grow, with manufacturing slowing and services and construction unable to build momentum.
Howard Archer, chief UK economist at IHS Global Insight, said he expected manufacturing to stabilise after a slowdown in April: "However, there are signs that manufacturers are now starting to find life more challenging as stock rebuilding wanes and tighter fiscal policy weighs down on domestic demand.
"Meanwhile, high oil prices and other elevated input costs are causing problems for manufacturers by substantially squeezing their margins and putting pressure on them to raise prices and risk losing business."Until last month the Markit purchasing managers' index registered higher growth than the figures provided by the Office for National Statistics.The ONS, which claims to provide the most comprehensive picture of industry and commerce, said the economy contracted in the last three months of 2010 by 0.5% and was flat over six months after a 0.5% recovery in the first three months of this year. It argued the fall and rise in GDP could largely be attributed to the snow in November and December and a rebound in the new year.
The PMI's showed stronger growth, especially in manufacturing and construction until March.
In April, the PMIs followed the same downward path as ONS data, showing economic growth slowed sharply. It sparked a wave of criticism from Labour and several right-leaning commentators who argued the government needed to change tack.
Chris Williamson, chief economist at financial data provider Markit, said the UK was suffering from the government's austerity measures and a broader slowdown in the world recovery.
He said: "Last week's flash PMI data showed a worrying slowdown in China and the Eurozone, with even the hitherto powerful German economic recovery showing signs of losing momentum."
Source: www.guardian.co.uk
Britain's economy will grow more slowly this year than has been forecast in official estimates, according to the British Chambers of Commerce (BCC), due to a weak first quarter and the impact of bank holidays and the royal wedding. Despite the sluggish performance, the lobby group said that it still backed the government's drastic plans to reduce the deficit, but called for more to be done to help businesses take up the slack caused by cutbacks in the public sector.
In its quarterly report out today, the BCC became the latest body to lower its expectations for the economy, forecasting growth of 1.3% in 2011 and 2.2% in 2012. That compares with its previous predictions of 1.4% and 2.3%, and is below forecasts from the UK government's financial watchdog, the Office for Budget Responsibility, which expects growth of 1.7% this year and 2.5% for 2012.
David Kern, the BCC's chief economist, said: "It is difficult to assess growth in the second quarter because of the volatility of the construction sector and the uncertain impact of the royal wedding. But with the number of days worked in April lower than usual, we expect the net effect will be to slightly reduce GDP growth."
Last week the Organisation for Economic Co-operation and Development downgraded its figures for the UK from 1.7% in 2011 to 1.4%. The Paris based think tank's chief economist Pier Carlo Padoan said that the government might have to slow down its deficit-cutting programme if growth did not improve.
The BCC, however, continued to back the government. David Frost, its director general, said: "Although growth will be slow, the government is right to persevere with its plans to cut the deficit. But this must be balanced with policies that allow business to drive the recovery. The budget was a positive start, but the government has more to do if the private sector is to create new jobs, invest and export, and contribute to a lasting economic recovery in the UK. Without a credible strategy aimed at driving growth, there is a danger the recovery will fizzle out."
But Kern said that although future growth would initially be slow, he did not expect a return to recession and saw the recovery gaining momentum from the fourth quarter onwards. The main drivers of growth over the next two years would be exports and, to a lesser degree, business investment, he said.
With inflation as measured by the consumer price index expected to rise to 4.5% this year, Kern predicted that the Bank of England would begin raising interest rates in August. But he warned: "We believe British businesses will be able to absorb small increases, but the monetary policy committee must act with great caution and must not be too aggressive in its tightening." The BCC also predicted a 150,000 increase in unemployment between now and the middle of next year.
Chris Leslie, shadow treasury minister, seized on the BCC forecasts to warn that cutting too far and too fast would harm the economy.
"Slow growth and more people out of work and on benefits will make it harder to get the deficit down," he said. "We need a plan B that puts jobs and growth first, because getting people off the dole and back into work is the best way to get the deficit down. And instead of giving the banks a tax cut this year, George Osborne should repeat the bank bonus tax to get jobs for young people, build more affordable homes and support small businesses."
The BCC report comes in a crucial week for the chancellor's stewardship of the economy.
Surveys of the manufacturing, services and construction industries could confirm that the slowdown in growth has become entrenched. Osborne has come under fire from right- and left-wing commentators after six months of stagnant growth, stubbornly high unemployment and an inflation rate running at more than double average wage rises.
The housing market is also suffering badly after six months of declining consumer confidence and a credit drought that has preventing first-time buyers from obtaining a mortgage.
Several economists said they expected the surveys to confirm the economy is struggling to grow, with manufacturing slowing and services and construction unable to build momentum.
Howard Archer, chief UK economist at IHS Global Insight, said he expected manufacturing to stabilise after a slowdown in April: "However, there are signs that manufacturers are now starting to find life more challenging as stock rebuilding wanes and tighter fiscal policy weighs down on domestic demand.
"Meanwhile, high oil prices and other elevated input costs are causing problems for manufacturers by substantially squeezing their margins and putting pressure on them to raise prices and risk losing business."Until last month the Markit purchasing managers' index registered higher growth than the figures provided by the Office for National Statistics.The ONS, which claims to provide the most comprehensive picture of industry and commerce, said the economy contracted in the last three months of 2010 by 0.5% and was flat over six months after a 0.5% recovery in the first three months of this year. It argued the fall and rise in GDP could largely be attributed to the snow in November and December and a rebound in the new year.
The PMI's showed stronger growth, especially in manufacturing and construction until March.
In April, the PMIs followed the same downward path as ONS data, showing economic growth slowed sharply. It sparked a wave of criticism from Labour and several right-leaning commentators who argued the government needed to change tack.
Chris Williamson, chief economist at financial data provider Markit, said the UK was suffering from the government's austerity measures and a broader slowdown in the world recovery.
He said: "Last week's flash PMI data showed a worrying slowdown in China and the Eurozone, with even the hitherto powerful German economic recovery showing signs of losing momentum."
Source: www.guardian.co.uk
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