The BCC now expects UK GDP growth to be 1.1% this year. That’s down from its 1.3% estimate in May and a steep drop from the 1.9% forecast in December. In 2012 it expects growth to be 2.1%, down from the 2.2% it predicted three months ago.
Weak economic data for the second quarter is the main reason why the growth forecasts have been trimmed again. Official data from the Office for National Statistics showed economic growth slowed to 0.2% in the three months to the end of May; partly due to the extra bank holiday for the royal wedding and the supply disruptions caused by the Japanese earthquake. That makes the BCC’s growth estimate of 1.1% for the year look pretty optimistic.
Although these were considered ‘one-off’ events, the BCC says the austerity measures will continue to take their toll. The annual inflation rate for 2011 is expected to be 4.4%, more than double the Bank’s 2% target. The organisation also expects unemployment to remain high, peaking at 2.62m in the last three months of 2012.
The squeeze on household finances as a result of high inflation and stagnant wage growth means that consumer confidence isn’t likely to return to its 2008 heights until 2014. The BCC expects consumer spending to fall by 1% in 2011, followed by modest growth of 0.8% in 2012 and 1.8% in 2013.
The main driver for UK growth over the next two years is expected to come from exports and business investment. But as consumer confidence remains so weak, it’s uncertain whether these will be enough. ‘The re-balancing of the economy towards net exports and investment is not yet happening at an adequate pace,’ the BCC’s David Frost said.
Concerns about the strength of the UK economic recovery are now gathering pace. The revised BCC growth forecasts come on the back of a subdued mortgage market, while the latest figures suggest the UK manufacturing sector is also losing momentum. Don’t be too surprised if the forecasts have another trim in three months time.