Global slowdown holding back UK growth

| December 4, 2012
Global slowdown holding back UK growth

Economic growth is still too weak, the British Chambers of Commerce (BCC) says, although growth exceeded expectations in the last quarter, helped by the Olympics.

The BCC expects the UK economy to contract by 0.1 per cent this year, an improvement on the 0.4 per cent contraction previously forecast.

However, the organisation has reduced its growth forecast for 2013 from 1.2 per cent to just 1 per cent, and has also cut its growth forecast for 2014, from 2.2 per cent to 1.8 per cent.

This reflects the worsening global economy, including the ongoing debt crisis in the eurozone, and expected further spending cuts in the UK.

BCC Chief Economist David Kern said: “We expect quarterly growth to increase gradually over the next two years, but we have to accept that it will remain modest and below trend for some time.

“Although there will be a slow improvement over the medium term, GDP will only return to its pre-recession levels at the end of 2014.”

While acknowledging that deficit reduction is important, the BCC is calling on the government to take action to deliver economic growth.

The Chancellor, George Osborne, is expected to confirm that the government will continue with its austerity strategy, when he announced his Autumn Statement tomorrow.

Independent economic forecasting body, the Office for Budget Responsibility (OBR) is also expected to deliver bad news on growth tomorrow.

Economists at Investec suggest that the OBR’s March estimate of 0.8 per cent growth for 2012 could be downgraded to a small contraction, while its forecast for 2 per cent growth in 2013 could be reduced by 0.5 percentage points.

The OBR is also expected to suggest that the Chancellor is failing to meet his ‘fiscal golden rules’ – the targets he set in his first budget.

Mr Osborne set himself the goal of eliminating the structural deficit on a rolling basis over five years, and for overall national debt to be falling as a proportion of GDP by 2015-2016.

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