The principal driver for the leading business group’s forecast upgrade is stronger than previously expected growth in both the UK’s service sector and consumer spending.
John Longworth, Director General of the British Chambers of Commerce, said: “Services continue to be the key driver for economic growth, along with consumer spending. While business investment is growing well, and the most recent export figures are somewhat improved, we cannot yet say that the UK’s economic recovery is as broad-based as we would like.
“Securing long-term, sustainable growth will require continued action and vigilance. The Bank of England must keep interest rates low for as long as possible, and ministers must have an undivided focus on fixing the fundamentals. Unless they help businesses by addressing deficiencies in education and training, investing in the UK’s inadequate infrastructure and improving access to growth finance, the upgrades to our growth forecasts may only be temporary.”
The BCC is upgrading its UK GDP growth forecasts from 2.3 per cent to 2.6 per cent in 2015, 2.6 per cent to 2.7 per cent in 2016, and 2.6 per cent to 2.7 per cent in 2017.
The upgrade is due to stronger than previously expected growth in services output and in consumer spending, as well as an upward revision to Q1 2015 growth.
John Longworth added: “While the UK economy has made important progress in recent years, our forecast shows that the growth rate of services will be nearly four times that of manufacturing this year, and our export performance will continue to fall short. There are also a number of external risks — including the sharp slowdown in China’s growth and continued uncertainty in the Eurozone — that could yet impact business confidence and performance here in the UK.
“Maintaining low interest rates will help to boost confidence and create a supportive environment for businesses in the short to medium term. Action by government to fix the fundamentals, both at the upcoming Spending Review and beyond, will help businesses to invest, export and create jobs.”
Speaking about the data, David Kern, Chief Economist at the BCC, said: “Our upgraded growth forecast shows that the UK economy is on firm footing. Low inflation has given a welcome boost to households, and our vibrant and flexible labour market continues to be a source of strength. Services output and consumer spending remain the key drivers of growth for the economy. Business investment is improving, and is forecast to grow at a steady rate.
“While the immediate outlook is positive, there are both domestic and external headwinds facing the UK economy. Low productivity, and curbing the unacceptably large fiscal and external deficits, are the biggest challenges. Job creation may also be impacted by the large increases in the minimum wage.
“While the UK will remain near the top of the G7 league table, there is no room for complacency. Global uncertainty — including the current situation in China, weakness in the Eurozone, and the widely expected rise in US interest rates — could trigger further bumps in the road. Factors outside our own control reinforce the case for the Bank of England to keep interest rates on hold until well into 2016. Policies to fix the fundamentals will support higher productivity, promote a stronger recovery in exports, and will help with the job of cutting the fiscal deficit.”
