The British Chamber of Commerce (BCC) has revised its UK growth forecast for 2015 and the following two years. GDP will grow 2.4% in 2015, down from 2.6%, and grow 2.5% in both 2016 and 2017, which is a drop from 2.7% in both years’ previous estimate. The reason for the downgrade is the poor performance of the manufacturing sector, which is expected to retract by 0.2% this year, as well as a smaller than expected fall in the trade deficit.
The growth in GDP of 2.4% is in line with the long-term growth trend of the UK, and is continuing to be lead by household consumption and the strong services sector. Growth in household consumption is forecast to be 3.1% in 2015, however, the BCC say this is a fueled by increased private sector debt, which could be problematic for the UK economy in the future. Director General of the BCC, John Longworth, said: “We cannot rely so heavily on consumer spending to fuel our economy, especially when driven by increased borrowing. We have been down this path before, and know that it leaves individuals and businesses exposed when interest rates do eventually rise.”
However, the BCC also states that UK businesses should be looking to invest much more, enabling them to grow and expand business into export markets. This will increase growth in the UK, create more jobs and relieve pressure on the trade deficit. Infrastructural investment is also recommended, and worthy of taking on more debt, with Longworth reminding us that, “not all debt is bad.”
The unemployment rate is expected to continue to fall from 5.3%, steadily down to 5.0% in 2018. Youth unemployment is estimated to take a similar path, falling from 15.7% to 14.7 by 2018.
The BCC are predicting the first official interest rate rise since 2007 will come in the third quarter of next year, from the current level of 0.5%, up to 0.75%. The rate will then gradually rise to a level of 1.75% at the end of 2017.
