The British Chambers of Commerce (BCC) has predicted a weaker outlook for UK GDP growth for 2018, referring to the uncertainty bordering around the country’s likely departure from the EU.
According to the prediction by BCC economists, GDP growth will fall to 1.1% from a previous forecast of 1.3% while the following year, it will hit only 1.3%, down as against 1.4% − and that by 2020 the UK economy will have witnessed another low decade of average annual GDP growth on record. Nonetheless, the UK GDP forecast for 2020 remains unchanged at 1.6% growth.
This, however, implies that the BCC figures correspond with that of earlier forecasters that caution Brexit uncertainty shattered the economy’s strength, though the latter follow optimistic official statistics that showed the economy improved by 0.6% in about three months towards the end of July.
The British Chambers of Commerce said the high upfront cost of doing business in the UK and ongoing uncertainty over the UK’s future relationship with the EU would continue to suffocate business investment, and cause growth to be constrained in the second half of the year.
Low Unemployment Rate
However, the employment market is expected to keep being a source of backbone for the economy, with the unemployment rate predicted to remain close to its 40-year low.
In addition to what the BCC said, there will be a significant lapse in skill set for businesses which may weaken their potential growth.
Adam Marshall, BCC’s director general, stated that the forecast would force the Chancellor of the Exchequer, Philip Hammond, to create a budget that supports struggling businesses.
“Brexit uncertainty continues to weigh heavily on many firms, as most of the practical questions facing trading businesses remain unanswered. At a time of massive change and uncertainty, business would not forgive a timid ‘business as usual’ autumn budget,” he remarked.
Cuts to Public Services
He also implied the existence of a growing need for the chancellor to set aside funds to reverse planned cuts to public services. To this, Hammond needs to find an extra £20bn for the health service after the prime minister promised to boost health spending with more than 3% a year.
The New Economics Foundation (NEF) said quite some government departments without any explicit spending protections from ministers—such as prisons and housing— would be exposed to severe funding shortfalls by 2023–24, which could affect their ability to provide decent public services.
NEF went further to state that Britain’s prisons should expect a budget waste worth £70m annually by the middle of the next decade, while funding for public health – which covers addiction services – would be slashed by £80m in the next five years based on current departmental spending restrictions if left unchanged.
Also, housing and planning – including schemes to incentivize the building of new homes and homelessness prevention – would risk being slashed about £30m per year over the same period.
The findings come ahead of the autumn budget, at the same time the chancellor plans to unveil the total amount of money available for a comprehensive spending review covering departments next year.
While allocating the funds to the budget, the government would conduct the expenditure review next year after Brexit.
Though the government has guaranteed to safeguard spending on schools, defense, and overseas aid, while other departments will have a tighter restraint on spending that can cause cuts over time.
NEF’s scrutiny is built on furthering the current expenses restrictions imposed by the government until 2023-24, which would be the likely final year of a four-year spending review. Which implies Hammond could meet his current deficit targets whether the government borrows a further £24.1bn per year by 2023-24.
Alfie Stirling, head of economics at the NEF said, “The decade of austerity so far has arguably been the worst policy error in a generation.”
“If the chancellor fails to take the opportunity to learn from the lessons of the past by taking action at the spending review, we could be living with the consequences of deteriorating service quality and lost living standards for years if not decades to come.”