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The Actuary The magazine of the Institute & Faculty of Actuaries

Growth forecasts upgraded as companies adopt ‘business as usual’ approach

The British Chambers of Commerce (BCC) has today upgraded UK GDP forecasts from 1.8% to 2.1% for 2016, and 1.0% to 1.1% in 2017, however it has downgraded expectations for 2018 from 1.8% to 1.4%.

Conditions buoyant this year ©Shutterstock
Conditions buoyant this year ©Shutterstock

The business network raised their forecast for 2016 after the economy recorded stronger than expected growth in the third quarter, although they believe momentum will slow over the next two years as the country negotiates its exit from the EU.

Despite the increased 2017 forecast, growth for that year is set to be the weakest it has been since the financial crisis, although the economy is not expected to enter a recession.

BCC director general, Dr Adam Marshall, said: “In the absence of a clear road ahead, many companies have been adopting a ‘business as usual’ approach in the months since the referendum, which has kept conditions buoyant this year and prevented a sharp slowdown in growth.

“While some firms see significant opportunities over the coming months, many others now see increasing uncertainty, which is weighing on their investment expectations and forward confidence.

“Deeper incentives for both investment and exporting will be needed in the months and years ahead. It is imperative that government do all it can to help UK businesses overcome risk and take advantage of opportunities.”

The expected economic slowdown over the coming years is thought to be as a result of the UK’s uncertain future relationship with the EU and rising inflation due to the depreciation in value of sterling.

The BCC believe that this inflation will reach 2.1% in 2017 and 2.4% in 2018, breaching the Bank of England’s 2% target next year.

In addition they expect public sector net borrowing to be £15.2bn higher over the next three years than predicted by the Office for Budget Responsibility at the 2016 autumn statement.

BCC head of economics, Suren Thiru, said: “Higher inflation and continued uncertainty over Brexit will weigh on the UK’s growth prospects, with consumer spending and business investment likely to be hardest hit.

“Average earnings should hold steady but inflationary pressures are expected to erode real wages, which will hit the spending power of households.”

It is also predicted that export growth will slow from 4.5% in 2015 to 2.6% in 2016 and 2.3% in 2017, before increasing to 2.9% in 2018.

While different sectors are expected to see vast differences in growth, with services forecast to rise to 1.7% in 2017 and 2018, construction activity forecast to fall by -2% in 2017, and manufacturing set to remain steady at 0.8% over the next two years.

“Exports will continue to grow but at a slower pace, and the UK’s net trading position is expected to improve as import levels weaken,” Thiru continued.

“The decline in the value of the pound is likely to help some exporters, although the lack of responsiveness of UK exports to other sterling devaluations in recent years suggest that its impact on overall export growth has been overstated.

“Uncertainty remains over the longer-term outlook, but the UK’s structural imbalances, including the over reliance on services and household spending as drivers of growth, continues to leave the UK vulnerable to rapid changes in economic conditions.”