The British Chambers of Commerce (BCC) has today (Monday) upgraded its growth forecasts for the next two years – from 2.7% to 2.8% in 2014 and from 2.4% to 2.5% in 2015. For 2016 (included in our forecast for the first time) we are expecting growth of 2.5%.
The Q1 2014 Economic Forecast conveys increasing business optimism, with GDP expected to exceed its pre-recession peak in Q2 2014 – a quarter earlier than we predicted in December 2013.
John Longworth, BCC Director General, says that the economy is ‘gaining momentum’ and pays tribute to businesses across the UK that have fought hard to grow and create jobs. However, Mr Longworth also warns that major issues remain as the economy still faces long-term challenges despite recent progress.
Graham Morgan, director of the South Wales Chamber of Commerce commented:
“The figures from the British Chamber of Commerce are certainly not out of kilter with what we are seeing in Wales, where there are plenty of good news stories. The recent figures from the ONS, which show that Wales is outperforming the rest of the UK in terms of exports, is a key indicator that Wales is at the forefront of the economic recovery.
“We have long said that businesses should look to expand their markets overseas if they want to fulfil their potential, and if Wales and the UK were to recover from the doldrums of the recession years. I’m pleased to say that many are taking that exact approach, and we are seeing more Welsh businesses seeking access to overseas markets.
“Our own statistics from our last Quarterly Economic Survey showed that businesses in Wales were starting 2014 in their strongest position for quite some time, with many no longer simply trying to weather the conditions of the economic storm of the last few years, but now beginning to experience real growth and a confidence that profit margins would increase during the year. This was underpinned by many stating a commitment to investing in, and growing, their workforces over the coming months.
“Our recent South Wales Chamber Business Awards also showcased many businesses here that are applying innovative and creative approaches to growing their businesses models.
“There’s also a real opportunity around the corner with the roll-out of superfast broadband across Wales, and businesses should be considering how they can make the most of the opportunities that it will present them. It can be a real game-changer for many, who will be able to showcase Wales, and their business, across the globe at the touch of a button.
“Of course, we can’t get too carried away, and not all businesses will be enjoying the return to profits that others are, or in a position to recruit yet either. However, these statistics are another sign that things are moving in the right direction.”
ECONOMIC FORECAST – OVERVIEW
- The BCC is raising its GDP growth forecast to 2.8% in 2014 and to 2.5% in 2015. The upgrades for 2014 and 2015 are mainly due to upward revisions to historic GDP data by the ONS. For 2016 (included in our forecast for the first time) we are expecting growth of 2.5%.
- GDP is likely to exceed its Q1 2008 pre-recession peak in Q2 2014 – one quarter earlier than we predicted in December 2013.
- UK GDP quarterly growth is forecast at 0.7% in Q1 2014, easing slightly to 0.6% in Q2 2014, before averaging 0.6% per quarter until the end of 2016.
- The main contributors to UK GDP growth in the next three years will be household consumption and output from services.
- After reaching 2.4% in 2013, growth in household consumption will continue at 2.4% in 2014, and will edge up to 2.5% in 2015 and 2016.
- Service sector output is forecast to record growth of 2.9% in 2014, 2.7% in 2015, and 2.7% in 2016.
- BCC expects the unemployment rate to fall from 7.2% in Q4 2013 to 6.0% in Q4 2016. The youth unemployment rate (16-24 year-olds) will remain close to three times the national average, falling from 19.9% in Q4 2013 to 17.8% in Q4 2016.
- Business investment is expected to record strong growth of 6.6% in 2014, 5.7% in 2015, and 5.7% in 2016. Even so, business investment in 2016 will still be slightly lower than in 2008.
- We are predicting that the first increase in official UK interest rates will be in Q3 2015 to 0.75% – one quarter earlier than previously forecast. We expect this will be followed by modest increases in 0.25% steps to reach 1.50% in the second half of 2016.
Commenting, John Longworth, Director General of the British Chambers of Commerce (BCC), said:
“Our economic recovery is gaining momentum. Businesses across the UK are expanding and creating jobs, and our increasingly sunny predictions for growth are a testament to their drive and ambition. Our new forecast shows that the service sector is performing particularly well, and is likely to be a key driver of growth. And the manufacturing sector, although small, is pulling its weight too, and will play an important role in sustaining our recovery.
“But it’s not time to break out the champagne glasses just yet. Major issues remain, such as the unacceptably high level of youth unemployment. We urge the Chancellor to use this month’s Budget wisely by incentivising businesses to hire young people so that the next generation of workers are not left behind.
“Crucially, Britain is simply not investing enough. While business investment is expected to grow, it will remain way below pre-crisis levels for some time. There is also more to do in securing access to finance for growing firms – as this too will be crucial to securing our economic future. So is getting public and private sector funding together to address the crippling gaps in our transport, digital and energy infrastructure.
“We just hope that as the General Election gets closer, politicians are not tempted to abandon a drive for long-term economic security in favour of short-term vote winners. No government over the next decade can afford to get distracted – and our leaders must do everything in their power to ensure the economy goes from being merely good, to being truly great.”
David Kern, Chief Economist at the BCC, added:
“The upgrades to our growth forecasts are largely due to revisions to historic GDP data by the ONS. The good news is that GDP growth is expected to remain well above 2% for the next three years, and is likely to exceed its pre-recession peak in the second quarter of 2014 – a quarter earlier than we predicted in late 2013. This shows that the economy is on the right track, but we mustn’t be fooled into thinking that it is back up to full strength just yet.
“The UK’s current account deficit remains excessive, and without a stronger rebalancing towards net exports, we could face serious risks to our long term economic health. In addition, while business investment is set to pick up, it is still far behind our pre-crisis peak. If we are to better this, we need higher productivity. What’s more, businesses will only increase their capital if the current environment of low inflation and low interest rates persists.
“The revamped forward guidance policy goes some way to easing business concerns, and the long-term security will encourage them to invest. However some MPC members seem to be signaling early interest rate rises. This kind of unhelpful speculation will only prevent business from investing and put pressure on an already strong pound, which could put the recovery at risk.”
