Chambers upgrades economic growth forecast

A leading business group has hiked its forecast for the UK economy this year but has warned it is “still a long way” from achieving sustained growth.

Chancellor George Osborne.

The British Chambers of Commerce (BCC) upgraded its outlook for gross domestic product (GDP) growth for this year from 2.6 per cent to 2.7 per cent and for next year from 2.4 per cent to 2.6 per cent. For 2017 it predicts 2.6 per cent growth.

It highlights consumer spending as well as the dominant services sector as key drivers of expansion but warns that sustainable growth depends on boosting business investment and exports.

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The BCC also cautioned on uncertainties facing business including tensions in the Ukraine and the Middle East and “the most wide open UK general election in decades” as well as the stagnating eurozone.

Director general John Longworth said: “While 2015 has got off to a good start, there is no room for complacency. The UK is still a long way from achieving the great, sustainable, long-term growth we want to see.

“Consumer spending is one of the key drivers in our growth upgrade.

“While there’s nothing wrong with consumer confidence, a balanced economy that will provide growth and jobs in the long-term needs a much bigger contribution from business investment and exports.”

The BCC has upgraded its forecast for exports this year but slashed expectations for business investment following slowdowns in the last two quarters of 2014.

Mr Longworth said it was a “clear warning sign” for politicians to help create a “stable and positive investment environment” and ensure firms could access the finance they need.

He added that while exports had improved, imports were still increasing at a faster rate leaving the UK’s current account deficit “a huge challenge”.

Mr Longworth said in the approach to the general election politicians needed to focus on “fundamentals, not on short-term vote winners”.

He added: “The next Government must be measured on whether it helps to boost business investment and supports improvements in the current account.”

The BCC has put back its forecast for a hike in interest rates by two quarters to the start of 2016. Market expectations for an increase have been pushed back amid record low inflation.

Its forecast of 2.7 per cent growth for 2015 brings it into line with the International Monetary Fund and the CBI.

Official figures showed the economy grew by 2.6 per cent in 2014, with quarterly growth slowing to 0.5 per cent in the last three months of the year. The BCC expects the pace to pick up to 0.7 per cent for the first quarter of 2015.

A Treasury spokesman said: “The latest economic forecasts from the BCC are yet further proof that our long-term economic plan is working, with the strongest growth of any major advanced economy last year and showing upgrades to UK growth forecasts for 2015 and 2016.

“But the BCC are right to say the job is not yet done so we must keep working through the plan that is delivering economic security in an uncertain world economy.”