The British Chambers of Commerce

06/08/2023 | Press release | Distributed by Public on 06/08/2023 16:39

BCC Economic Forecast: Upgrade to GDP but UK economy flatlining

June 08 2023

BCC Economic Forecast: Upgrade to GDP but UK economy flatlining

The British Chambers of Commerce (BCC)upgrades its 2023 GDP forecast to 0.3%,but economic activity will remain weak throughout the year, according to the organisation's latest Quarterly Economic Forecast.

UK Economic Outlook  

The UK economy remainson course to avoid a technical recession. A growth rate of 0.3% is expected for the whole of 2023, rising slightly to 0.6% in 2024, and 1.0% in 2025.

BCC's programme of business surveysshow that inflation remainsthe top concern for UK firms.The forecast for the CPI rate remainsunchanged from the previousforecast at 5.0% in Q4 2023.

Slight upwards revision to GDP

In the short term, the BCC is expecting quarterly GDP to remain flat throughout 2023, with three quarters of 0.1% growth and one quarter of no growth - leading to overall growth of 0.3% for the year. This is in line with the Bank of England's forecast, but more optimistic than the OBR's. The BCC expects the economy to grow by 0.6% in 2024.

The slight upwards revision from the BCC's previousQ1 forecast of -0.3% to 0.3% is due to higher levels of household spending and recent increases in overall business investment. Evidence fromrecent BCC business surveysalso showed a rebounding of business confidence at the start of 2023.

However, despite greater political stability, stubbornly high inflation rates and labour market shortages continue to weigh on growth. Export activity fell back at the end of 2022 as global supply chain crises and trade barriers with the EU disproportionately impactedsmaller exporters. Exports are likely to decline by 4.7% across 2023, a downwards revision from the previousforecast.

The latest Quarterly Economic Survey shows a significant uptick in business confidence from 2022 levels. This is likely to result in increased investment, with the BCC now predictingbusinessinvestment to grow by 1.3% in 2023, an upwards revision from the previously predicted level of 0.2%.

Inflation forecast remainsunchanged

Inflation remainsamong the top concern for UK businesses, and the forecast for the CPI rate remainsunchanged from the previousforecast of 5.0% in Q4 2023. It is expected to continue to slow, and drop below the Bank of England's target, to 1.5% in Q4 2024.

Average earnings are expected to grow by 4.5% in 2023 and will lag behindinflation until 2024 when they will increase by 2.6%.

While energy and commodity prices begin to ease, core inflation remainsstubborn. The Bank of England interest rate is expected to peak at 4.75% in the second half of 2023, higher than the previousforecast of 4.25%. It is expected to fall to 4% in 2024, and 3.75% in 2025.

Modest revisions to investment and household spending, with Government spending contracting

Overall investment is expected to increase by 0.7% in 2023, up from the previousforecast of -1.5%. Household consumption has also been revised upwards, from -0.4% to 0.2% for 2023. However, Government spending is expected to contract significantly by 4.1%, down from the previousprediction of 1.8% growth.

The picture for 2024 is more uncertain, with investment predicted to contract by 0.4% in the year. General Government spending is also expected to contract again, this time by 1.9% across the year.

Slight growth in unemployment rate

The labour market is expected to remain tight as a record number of organisations report recruitment difficulties in the BCC's business surveys, particularly in the hospitality, retail, and manufacturing sectors. However, some modest growth in the unemployment rate is expected, rising to 4.1% in 2023 and 4.4% in 2024 as the number of vacancies begins to fall.

Commenting on the forecast, Vicky Pryce, Senior Member of the BCC Economic Advisory Council, said:

"Today's forecast from the BCC showsthat we are on course to only narrowly avoid a recession. With anaemic growth rates predicted into the future, there is a real danger of slipping back into recession territory at any point.

"The risk of recession creates greateruncertainty for firms, with the level of businessinvestment likely to remain lowdespite Government support. These figureswill give businesses little comfort,with some of the forecasts makingfor very concerningreadingabout the future state of oureconomy against a still challenging international environment."

David Bharier, Head of Research at the British Chambers of Commerce, said:

"UK growth expectations have been upgraded slightly followingthe easing of political turbulenceof 2022 and a rebounding of business confidenceat the start of the year.

"However, a high degree of uncertainty hangs over the UK economy. MostSMEs continue to report the toughest trading conditions in years, with stubbornly high inflation, record tightness in thelabour market, and the creation of trade barrierswith the EU. This amounts to very lowlevels of growth with ourresearch showing that most firms are still not increasingtheir investment.

"The current trajectory of anaemic growth is unlikely to change unless there are significant changes to the external environment, particularly in the ability of firms to recruit and export. Enabling firmsto have greater access to the skilled people they need, reducing trade barriers, and creating a stablepolicy andtax environment will be essential to tapping into investment."

Click here for BCC Quarterly Economic Forecast infosheet Q2 2023

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