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BCC cautious over economy despite upward GDP revision

 
General News |  31/08/2010
BCC cautious over economy despite upward GDP...The British Chambers of Commerce (BCC) has made an upward revision to its short-term economic forecast, in a move which could increase optimism within the UK business community.

Gross domestic product (GDP) is now expected to increase by 1.7 per cent this year, and 2.2 per cent in 2011, up from the BCC's earlier predictions of 1.3 per cent and 2.0 per cent.

Growth has been witnessed in every quarter since the final three months of 2009, when the UK exited recession, and the organisation expects this trend to continue.

However, the BCC has offered a word of caution, suggesting that the coalition government's austerity programme and the worsening global background are likely to dampen Britain's medium-term prospects.

In 2012, the organisation expects economic output to increase by 1.8 per cent, slightly down on the forecast for the previous year.

BCC chief economist David Kern noted that UK GDP was "very strong" in the second quarter of 2010 and the pace of growth will remain satisfactory in the second half of this year.

"Activity will be supported in the short-term by the cumulative impact of the huge injections of stimulus during the recession, the earlier sharp falls in sterling, and the rebuilding of stocks," he noted.

"However, we expect a sharp slowdown in the pace of growth to start in the first quarter of 2011, as VAT increases to 20 per cent and tough spending cuts are implemented."

The need to significantly cut the deficit, strengthen the banking sector and reduce personal debt will inevitably limit growth until the middle of the decade, Mr Kern claimed.

He said that over the next five years, GDP growth is likely to average just under two per cent per annum, considerably less than the three per cent average growth recorded between 1993 and 2007.

"If successful, the forceful deficit-cutting strategy announced in the emergency Budget would put the UK on a path of sustainable and affordable recovery, and could help create a leaner and fitter economy," he commented.

But, the scale of fiscal retrenchment, and the decision to cut the deficit at an accelerated pace, will "inevitably increase dangers of a double-dip recession", he added.

Posted by John Lynes

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