UK growth forecast downgraded as Brexit uncertainty hits investment and trade

The British Chambers of Commerce (BCC) has lowered its UK growth forecast and warned that by 2020 the economy will have experienced its second weakest decade of average annual GDP growth on record.

The BCC has lowered its growth expectations for the UK economy, forecasting GDP growth for 2018 at 1.1%, down from 1.3%, and from 1.4% to 1.3% for 2019.

It said the downgrades for 2018 and 2019 have been largely driven by a weaker outlook for trade and investment.

“Exporters face more subdued growth given continued Brexit uncertainty and the expected slower growth in key markets. As a consequence, net trade is expected to make a negative contribution to GDP growth over the forecast period.

“The outlook for investment is more subdued than in our previous forecast with persistent economic and political uncertainty expected to increasingly weigh on investment intentions. Business investment growth is expected to be weaker across the forecast horizonthan in our Q2 forecast.The high upfront cost of doing business in the UK and the ongoing uncertainty over the UK’s future relationship with the EU are expected to continue to stifle business investment.”

The BCC said the labour market is expected to continue to be a source of strength for the economy, with the unemployment rate forecasted to remain close to its record low.

“However, in such a tight labour market, businesses will continue to face significant skills gaps, undermining their potential to grow. At the same time, workers are unlikely to experience meaningful real wage growth as the gap between pay and price growth is forecast to remain negligible,” the BCC said.

Dr Adam Marshall, director general of the BCC, said: “Despite strong performances by some firms, the UK economy as a whole is set to grow at a snail’s pace. Brexit uncertainty continues to weigh heavily on many firms, as most of the practical questions facing trading businesses remain unanswered. The lack of precision on the nature of the UK’s future relationship with the EU is lowering expectations for both business investment and export growth.

“The drag effect on investment and trade would intensify in the event of a ‘messy’ and disorderly Brexit. Businesses need the Brexit negotiations to deliver clarity, precision and results at pace over the coming weeks.

“A deal with Brussels won’t deliver stronger UK growth on its own. The Prime Minister and the Chancellor must now pull out all the stops here at home to bolster business confidence, slash costs, and crowd in investment. At a time of massive change and uncertainty, business would not forgive a timid ‘business as usual’ Autumn Budget, nor tax hikes that make UK companies less competitive around the world.”

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