BCC slashes growth forecast

It's the fourth time this year the forecast has been cut. Not the best news on the eve of the Chancellor's autumn statement.

by Emma Haslett
Last Updated: 06 Nov 2012

The British Chambers of Commerce has slashed its growth forecast for the UK, from 1.1% this year to just 0.9%, while growth in 2012 will be a mere 0.8%, compared with its previous forecast of 2.1%. This is becoming a bit of a habit: it’s the fourth time this year the BCC has cut expectations. It’s not the only one, either: the Office for Budget Responsibility will, in all likelihoods, cut its expectations tomorrow, while the Organisation for Economic Co-operation and Development is expected to make the even less optimistic prediction that Britain will enter into recession early next year.

The BCC’s forecast isn’t for the faint-hearted: according to its calculations, even in 2013, growth will remain ‘weak by historical standards’. Unemployment will also keep rising, to 2.77m next year (that’s an extra 150,000 added to the total), while youth unemployment will hit an alarming 42%. No surprise, then, that the Treasury will have to up its borrowing by another £27bn. The BCC says that’s partly down to the crisis in the eurozone, and partly down to the severity of Government austerity measures (although BCC chief economist David Kern added that those very measures have ‘earned the UK credibility in the financial markets’. Swings and roundabouts).

What can the Government do to mitigate the impact of potential economic armaggedon? The BCC reckons there are various measures it can take. Firstly, when it injects (even) more cash into the economy through its quantative easing programme (which it increased to £275bn last month, but will raise to £325bn next year, according to the forecast), it should buy assets directly from businesses, rather than pussy-footing around with its current strategy of buying government bonds. Although a £40bn ‘credit easing’ scheme announced by the Chancellor this weekend should make a good start on injecting liquidity into the private sector...

Actually, from what was uncovered over the weekend, the Chancellor’s Autumn Statement will be heavy on business-friendly measures. According to various reports, the centrepiece of George Osborne’s plan, to be announced tomorrow, is a £30bn national infrastructure programme, which will be put into everything from schools to a cap on rail fares. It’ll also defer a 3p rise in fuel duty, which was due to be introduced in January, and will also be ploughed into removing health and safety red tape for 1m self-employed people. Although it's worth pointing out that only £5bn of that will come from the Government - the rest will be private investment, which the Chancellor hopes will come from pension funds, and the Chinese.

There is one caveat: naturally, Osborne had to include at least one now-traditional bank-bashing measure. Thus, he’s expected to increase the bank levy, maintaining the Government’s £2.5bn income from banks. As any banker will point out, the bank levy was supposed to be a temporary thing, so any increase will go down like a lead balloon in the City. Although to be fair, considering the fact that David Cameron, Osborne et al have put their necks on the line to save the CIty from Europe’s plans for a ‘Robin Hood’ tax on financial transactions, they may just have to suck it up...

- Image credit: Flickr/altogetherfool

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