Commenting on the Conservative Party Manifesto, Dr Adam Marshall, Director General of the British Chambers of Commerce (BCC), said:

“A number of the headline commitments in the Conservative Party’s manifesto will be welcomed by business communities around the UK. If delivered, pledges to overhaul the broken business rates system, to deliver better digital and mobile connectivity, and to focus more systematically on unlocking the growth potential of cities, towns and counties around the UK would respond to some of the key concerns of the business communities we represent.

“However, the positive reception to some elements of the manifesto will be tempered by proposals that would increase up-front costs, regulatory obligations and uncertainty for businesses. The Conservatives’ proposed approach to immigration, at a time when many firms are already doing everything they can to train up and employ UK workers, will worry companies of every size, sector, region and nation. Some of the Conservative proposals for additional market intervention and new employment regulation will be questioned, even by firms that are not directly affected themselves, because of the signals they send.

“The Conservative manifesto recognises that the UK needs a strong economy, stable public finances, a strong domestic business environment and outward-looking trade policies to weather the Brexit transition and develop a new model for growth. However, the document includes few specifics on how these important goals will be achieved.

“Over the coming weeks, business communities will want to see much more detail on how the manifesto’s pro-enterprise elements would be implemented, and their concerns on its more interventionist elements clearly addressed.”

Commenting on the labour market statistics for April 2017, released today by the Office for National Statistics, Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:

“With unemployment continuing to fall and employment levels rising, conditions in the UK labour market remain robust.

“However, labour market indicators often lag behind the wider economy and it remains likely that employment growth will start to soften over the near-term, as more subdued economic conditions and the rising cost of doing business in the UK stifle firms’ ability to recruit. The BCC’s Quarterly Economic Survey shows the proportion of firms reporting recruitment difficulties remains close to a record high, which is undermining their productivity and growth.

“With increases in regular pay slowing again, earnings growth is now comfortably trailing behind inflation. If the disparity between pay and price growth continues to increase as we predict, household spending is likely to slow further, weakening overall economic activity.
“The next government must do more to close the skills gap, including improving the transition from education to work by guaranteeing universal experience of work in all schools for under 16s, and delivering a future immigration regime based on economic need, rather than an arbitrary migration target. This will help firms compete on the global stage, boosting UK productivity and growth.”

Commenting on the Bank of England inflation report and interest rate decision published on ‘Super Thursday’, Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:

“The Bank of England’s latest projections point to little change in outlook for the UK economy, compared to their February report, with only a slight downgrade for 2017. Significantly, the central bank see inflation as a greater risk to the UK’s growth prospects in the coming months.

“In our view the Bank of England’s forecasts are still too optimistic about the UK’s near-term growth prospects. We expect that inflation will weaken economic activity by more than the central bank is currently predicting, with wage growth likely to remain persistently below price growth over the next few years. Rising input costs faced by businesses are also likely to weigh more heavily on investment intentions than the Bank of England forecasts currently imply.

“The Bank of England is likely to face a major headache over the next few years as it seeks to strike a balance between managing a period of above target inflation and supporting more subdued economic growth. Longer-term uncertainty over the impact of Brexit on the UK economy is also likely to weigh on UK monetary policy decision-making. Against this backdrop, the most likely scenario is that the MPC will opt for a prolonged period of monetary stability and keep interest rates steady over the near term.

“Is vital that the next government addresses some of the longstanding issues facing the UK economy, including the relentless increases in the up-front cost of doing business in Britain, and investing in critical infrastructure to enable businesses to continue to drive investment, create jobs and boost growth.”

  • BCC upgrades 2014 GDP growth forecast from 3.1% to 3.2% – the highest growth rate since 2007
  • Growth forecast for 2015 upgraded from 2.7% to 2.8%, but remains unchanged for 2016 at 2.5%
  • First increase in official interest rates to 0.75% expected in Q1 2015
  • GDP growth will continue at a strong pace of 0.8% in Q3 2014
  • Exports of goods and services downgraded: from 1.9% to 0.8% for 2014, from 4.2% to 4.1% for 2015
  • John Longworth: “We must ensure the stellar growth in 2014 is not a flash in the pan”

The British Chambers of Commerce (BCC) has today (Thursday) upgraded its GDP growth forecasts for this year and next year – from 3.1% to 3.2% in 2014 and from 2.7% to 2.8% in 2015. With expected growth of 3.2%, 2014 will be the first year since 2007 that growth will have exceeded 3%. This is largely due to stronger employment figures and higher expected growth for Q3 and Q4 2014 than previously forecast in May.

The business group, which represents thousands of companies across the UK, is forecasting a moderate slowdown in growth from 2015, with its prediction for 2016 remaining unchanged at 2.5%. This reflects a deceleration in household consumption and falling public spending as a share of GDP. BCC Director General John Longworth says we must do everything possible to ensure the strong growth in 2014 is not a ‘flash in the pan’. He calls the expected slowdown in 2015 and 2016 a ‘warning sign’ for the UK, which is currently too reliant on consumer spending as a growth driver.

ECONOMIC FORECAST – OVERVIEW

  • The BCC is raising its UK GDP growth forecast from 3.1% to 3.2% in 2014, and from 2.7% to 2.8% in 2015.
  • Upgrades for 2014 and 2015 are mainly due to: a stronger labour market; higher than expected growth in Q3 and Q4 2014; and upgraded ONS estimates for year-on-year GDP growth in Q2 2014.
  • For 2016, the BCC’s GDP growth forecast remains unchanged at 2.5%.
  • The first increase in official interest rates is expected in Q1 2015 to reach 0.75% – unchanged since our last forecast in May.
  • The BCC expects modest increases of 0.25 percentage points, with interest rates reaching 1.25% in Q4 2015 and 2.25% in Q4 2016.
  • After official rates start rising in 2015, household consumption will slow markedly.  But consumption will still contribute to GDP growth more than other areas of the economy.
  • The UK unemployment rate is forecast to fall from 6.4% in Q2 2014, to 5.5% in Q2 2015, 5.0% in Q2 2016 and 4.9% in Q2 2017.
  • The new forecast for exports of goods and services has been downgraded for the next two years: from 1.9% to 0.8% for 2014, from 4.2% to 4.1% for 2015, and remains unchanged at 4.6% for 2016.
  • The downgrade in exports is due to the lower than expected figures for Q2 2014. The ONS also revised down its historical figure for exports in 2013, from 1.9% to 0.5%.

Commenting, John Longworth, Director General of the BCC said:

“Our forecast confirms that Britain has become one of the fastest-growing developed economies. We are leading, rather than following, other major economies when it comes to short-term growth. Businesses up and down the country should be congratulated for their hard work and determination in driving the UK recovery despite a number of international and domestic challenges.

“The task at hand is to ensure that the stellar 2014 growth is not a flash in the pan. We need to invest and export more, innovate, and build. It is disappointing that we have downgraded export growth for the next two years as a strong international trade performance is key if we are to steer away from a reliance on consumer spending. While business investment is forecast to grow strongly over the next three years, it will be growing from a low base. To sustain investment momentum into the future, the government and the Bank of England need to give businesses the confidence they need to invest by keeping official interest rates low for as long as possible. Any future rate rises must be gradual and modest.

“The UK must aim higher than accepting growth rates that simply go back to where they were before the recession, or worse – fall even lower. If we are to maintain a world-leading growth performance, we need a long-term partnership between government and business – with ministers unblocking infrastructure projects and improving access to finance so firms across the UK can invest, create jobs and export. We have a wealth of impressive and enterprising businesses in the UK, and there is no reason why a 3% growth rate should be the height of our ambitions.”

David Kern, Chief Economist at the BCC, said:

“Though our GDP forecasts have been upgraded for the next two years, we are predicting a slight slowdown in the pace of growth from next year. This reflects a deceleration in household consumption, and falling public spending as a share of GDP. Together, these factors will more than offset the increased contributions to GDP growth from investment and trade.

“We predict strong growth of 0.8% per quarter in the second half of this year. But as interest rates start to rise in 2015, indebted households with mortgages will face increased financial pressures, and much weaker household consumptionwill act as a drag on growth. To maintain our world leading performance, we may have to look to other sources of growth. Greater efforts to boost exports and investment, and avoiding premature interest rate increases, will ensure that the recovery is sustainable and that the pace of growth can strengthen in the future.

“The UK recovery remains on course and we are now outperforming other major economies. But many potential obstacles remain up ahead. Geo-political uncertainties such as Ukraine and the Middle East and sluggishness in the eurozone will remain serious challenges for some time. It is therefore doubly important to address the risks that we can tackle, such as the UK’s huge current account deficit. To continue driving the recovery, businesses need a stable and supportive environment that encourages enterprise, with low interest rates.”

OTHER ELEMENTS FROM WITHIN THE FORECAST

Main components of demand

  • We expect growth in household consumption to strengthen to 2.9% in 2014, and then slow to 2.8% in 2015 and 2.2% in 2016. Our new forecast is higher than in Q2 for 2014 and 2015, and unchanged for 2016.
  • Our new business investment forecast predicts stronger 2014 growth than we expected in Q2, but unchanged growth in 2015 and 2016. We expect business investment to record relatively strong positive growth of 10.7 % in 2014, 7.4% in 2015 and 7.4% in 2016.Even so, business investment will only surpass its Q1 2008 pre-crisis peak in Q3 2016.
  • Our forecast is that the real net trade deficit will fall from 1.4% of GDP in 2013 to 0.8% in 2016, while the net deficit in current prices will fall from 1.8% of GDP in 2013 to 1.2% in 2016. As in recent years, the progress of net trade will be mainly due to a higher trade surplus in services.

Main sectors of the economy

  • The services sector, the UK economy’s long-standing main growth driver, is forecast to record calendar year growth of 3.3% in 2014, 3.1% in 2015, and 2.7% in 2016. The share of services in total UK output is likely to rise a little further in the next few years.
  • Our new forecast for total industrial output predicts positive calendar year growth of 2.0% in 2014, 1.4% in 2015 and 1.4% in 2016.
  • Manufacturing output: Our new forecast envisages positive manufacturing growth of 3.0% in 2014, 1.5% in 2015 and 1.6% in 2016.
  • Construction output: In full-year terms, we predict construction output growth of 4.3% in 2014, 2.8% in 2015 and 3.0% in 2016.

Official interest rates

  • Our new central forecast is that the first increase in UK official interest rates, to 0.75%, will occur in Q1 2015. This timetable is unchanged since our Q2 forecast.
  • Further modest increases in official rates can then be expected, in small steps of 0.25 percentage points, with official rates reaching 1.25% in Q4 2015 and 2.25% in Q4 2016.

Unemployment and productivity

  • Our new forecast envisages that the UK unemployment rate will fall from 6.4% in Q2 2014 to 5.5% in Q2 2015, 5.0% in Q2 2016 and to 4.9% in Q2 2017. We expect UK unemployment to fall faster, and to a lower level, than we predicted in Q2.
  • We are forecasting total UK unemployment to fall from 2.077 million in Q2 2014, to 1.817 million in Q2 2015, to 1.677 million in Q2 2016, and to 1.657 million in Q2 2017 – a net overall fall in total unemployment of 420,000 over the next three years
  • We are forecasting that total youth unemployment (people aged 16 to 24) will fall from 767,000 in Q2 2014 (a jobless rate of 16.9%), to 636,000 (a jobless rate of 13.8%) in Q1 2017, a net fall of 130,000
  • Productivity: Our forecast envisages modest increases in productivity from current low levels. However, productivity is unlikely to reach its pre-recession level in the next three years.

Public finances

  • UK public finances: The OBR forecast, outlined at the time of the March 2014 Budget, is realistic in predicting steady falls in borrowing. But the OBR’s timetable is slightly too ambitious in our view.
  • While the OBR is forecasting that UK public sector net borrowing would move into a small surplus in 2018/19, our view is that achieving this aim this would take one to two years longer.

Inflation

  • In annual average terms, we are forecasting annual CPI inflation at 1.8% in 2014, 1.9% in 2015 and 2.0% in 2016. In Q2 we predicted 1.9% in 2014, 2.0% in 2015, and 2.1% in 2016.