Britain’s recovery will be slower than previously forecast and the economy needs more support from the government through a program of business investment, according to the British Chambers of Commerce.
The BCC cut its 2013 growth forecast to 1 percent from 1.2 percent in September and its 2014 projection to 1.8 percent from 2.2 percent, the London-based group said in a report today, citing a weaker global backdrop and the likelihood of further fiscal tightening by the government. A separate release from Markit Economics showed construction output unexpectedly shrank in November as orders and confidence plunged.
Chancellor of the Exchequer George Osborne will deliver his autumn economic statement to Parliament tomorrow and must manage a commitment to his fiscal squeeze alongside a risk that excessive tightening will prevent a recovery. Acknowledging this, the BCC called for measures to boost company investment while protecting Britain’s top credit rating.
“Growth is still too weak,” said BCC Director General John Longworth. “We have always been behind the chancellor’s aim of reducing the deficit, but this has to be supported with the right conditions that allow businesses to thrive, or we will fail to see the growth the economy so desperately needs.”
Britain’s double-dip recession ended with 1 percent growth in the third quarter, though the BOE has forecast a “zig-zag” pattern for gross domestic product and sees a possible contraction this quarter. King said on Nov. 14 that the recovery will be “long and winding.”
The BCC, which represents 104,000 businesses employing more than 5 million people, raised its growth forecast for 2012 and now sees a 0.1 percent contraction. The upgrade reflects the third quarter expansion that was boosted by the London Olympics and other one-time factors.
The group pared its projection for unemployment and now sees the number of jobless increasing to about 2.65 million people at the end of 2013 compared with an earlier prediction of 2.75 million.
The business lobby also forecast that the Bank of England won’t restart gilt purchases and said that adding to quantitative easing should only be considered “if new threats emerge to the stability of the U.K. banking system.” It said the BOE should make “better use” of the program by buying private-sector assets rather than gilts.
The Monetary Policy Committee begins a two-day meeting tomorrow and all 36 economists in a Bloomberg News forecast that the target for purchases will be held at 375 billion pounds ($603 billion). The BOE will announce the decision at 12 p.m. on Dec. 6.
Osborne said on Dec. 2 that it’s taking longer than expected to balance the public finances, suggesting his plan to eliminate the bulk of the deficit may be extended by another year to 2018, while a target to trim debt may also be missed. The BCC said the deficit plan will take “two to three years longer” than envisaged in the March 2012 budget.
“Since stretching the original timetable for stabilizing debt is unavoidable -- because of the recent overshoot in borrowing due to our weak growth -- the markets are likely to accept steps aimed at overcoming stagnation,” the BCC said. “The precise scale of any stimulus that can be safely provided is a matter of judgment.”
Ahead of his autumn statement, Osborne told the Cabinet today that he will cut the budgets of government departments to fund a 5 billion-pound capital spending plan, according to Prime Minister David Cameron’s spokesman Steve Field.
Separately, the Bank of England’s Financial Policy Committee said the U.K.’s economic recovery depends on banks doing more to improve capital buffers and rebuild confidence in their balance sheets.
“Where necessary, taking decisive action to tackle problems in banks’ legacy portfolios and remove uncertainty about capital adequacy could help to rebuild confidence and so enable banks to expand their balance sheets more quickly to support new lending and the wider economic recovery,” the FPC said in the record of its Nov. 21 meeting.
In its report, Markit said its U.K. construction index dropped to 49.3 in November from 50.9. Economists forecast a reading of 50.5. A reading below 50 indicates contraction. Orders fell at the fastest pace for more than 3 1/2 years and confidence dropped to its lowest level since 2008.
A report yesterday showed that U.K. manufacturing shrank less than economists forecast last month. A Markit survey tomorrow may show that services strengthened in November, according to the median estimate in a Bloomberg survey.
In a separate release today, the British Retail Consortium said like-for-like sales at U.K. stores rose 0.4 percent in November from a year earlier. Total sales increased 1.8 percent.
“Much is hoped for from the chancellor’s autumn statement, but in the meantime, retailers enter December in a state of nervousness,” said David McCorquodale, head of retail at KPMG, which compiles the index. Consumers shopping for the approaching holidays “are holding off for as long as they can to see if there might be bargains available in the next few weeks.”
To contact the reporters on this story: Jennifer Ryan in London at email@example.com; Scott Hamilton in London at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com