UK Continue To Witness Business Investment Freeze In 2019: BCC

Economic growth in the UK in the current year and in 2019 is likely to be the weakest since last recession following a deep freeze in business investment and poor consumer demand prior to the Brexit, according to a forecast released by the British Chambers of Commerce (BCC) on Tuesday (18).

According to the key finding in the forecast, UK GDP growth forecast for 2018 is marginally upgraded from 1.1 per cent to 1.2 per cent. UK GDP growth is expected to slow to 0.1 per cent in fourth quarter of 2018 (down from 0.6 per cent in the previous quarter). 2019 GDP forecast stays at 1.3 per cent, while 2020 is slightly downgraded, from 1.6 per cent to 1.5 per cent.

Business investment is expected to contract in 2018 by 0.6 per cent (down from 1.0 per cent growth in previous forecast), before growing by just 0.1 per cent in 2019, and 1.2 per cent in 2020.

Household consumption is now forecast to grow at 1.5 per cent in 2018, 1.2 per cent in 2019 and 1.5 per cent in 2020, compared to 1 per cent in 2018, 1.3 per cent in 2019, and 1.7 per cent in 2020 in the previous forecast, according to BCC.

Average earnings growth will outstrip inflation over the forecast period, but by less than BCC’s previous forecast, with growth of 2.6 per cent, 2.7 per cent, and 2.9 per cent, compared with CPI inflation of 2.5 per cent, 2.4 per cent, and 2.2 per cent.

BCC forecasts export growth of 1.4 per cent in 2018, 2.3 per cent in 2019, and 2.2 per cent in 2020, down 1.7 per cent, 2.7 per cent, and 2.9 per cent respectively when compared to the previous forecast

These worrying figures coincide with the repeated delays on agreeing the withdrawal agreement and political declaration on the terms of the UK’s exit from the EU and future trading arrangements. With firms looking on with utter dismay at the ongoing saga in Westminster, many have hit pause on major investment plans, including plant, machinery and premises.

The BCC’s forecast assumes that the UK will reach an agreement in negotiations with the EU, and avoid a cliff edge in the short term. Longer-term prospects are still uncertain, but this forecast assumes that a trade deal is reached, at least at outline level. Other scenarios would lead to revisions in the next forecast.

In addition to weaker business investment, the slide in the value of the pound together with weaker confidence levels is expected to stifle the contribution of net trade and consumer spending to UK GDP growth.

Inflation is now expected to be higher over the forecast period as the weakness in sterling pushes up the cost of imports.

If realised, the leading business organisation’s latest forecast shows an economy on pause. With just over 100 days to go until the UK leaves the EU, firms are still in the dark as to what trading conditions they face, and many businesses are holding back on investment and hiring.

The BCC urges Westminster to come together to provide clarity on the UK’s future relationship with the EU, and crucially avoid a messy and disorderly Brexit that the country is simply not prepared for.

Commenting on the latest forecast Suren Thiru, Head of Economics at BCC said, “…the contribution of business investment to UK GDP growth is expected to be more downbeat than we previously projected as the increased uncertainty over Brexit weakens business confidence and stifles investment activity…”