The U.K. government should bolster aid to companies to help them weather headwinds from Europe’s debt crisis, the British Chambers of Commerce said as it cut its forecast for the economy.
The London-based business lobby lowered its 2012 growth projection to 0.6 percent from 0.8 percent in December, it said in a report today. It pushed out its forecast for the first Bank of England interest-rate increase to the end of 2013 from the first quarter of that year.
Chancellor of the Exchequer George Osborne, who will present his budget in Parliament on March 21, has scope to help businesses without jeopardizing investor confidence or the U.K.’s top credit rating, the BCC said. The U.K. economy contracted 0.2 percent in the fourth quarter as company investment fell.
“The U.K. economy faces serious challenges, with problems in the euro zone creating difficulties for exporters, combined with dampened domestic demand,” John Longworth, director general of the BCC, said in the statement. “There is room within the current spending envelope for measures that will encourage firms to export, invest and grow.”
The government should forgo a 5.6 percent increase in business rates due in April and start a program to ease the flow of credit to businesses, the BCC said. Since his fiscal squeeze has already put him in line to undershoot borrowing forecasts in the current fiscal year by 8 billion pounds ($12.7 billion), Osborne has room to support companies with 4 billion pounds of stimulus, said David Kern, BCC chief economist.
The Bank of England is “unlikely” to raise its bond- purchase target above the current 325 billion pounds since “the benefits of such a move are questionable,” the BCC said. The bank raised the target by 50 billion pounds last month.
U.K. business confidence rose last month to the highest since September, Lloyds Bank Corporate Markets said in a separate report today. The index of optimism compared with three months earlier rose 12 points to 1, reducing the risk that the economy will contract again in the current quarter.
Recruitment company Reed said that its gauge of new jobs rose 17 points in February from the previous month to 140, the highest since the series began in December 2009. Measures for eleven private industries rose to record highs, including engineering and recruitment. A gauge of salaries at new jobs rose 2 points to 100, the highest since March 2010.
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