Trade boost to help Britain avoid recession, say business economists


The weaker pound will boost exports, however, meaning the country should avoid a recession, reports The Telegraph.

As a result the economy will slow to grow by 1 per cent in 2017, the BCC said, down from its previous forecast of 1.8 per cent.

It expects business investment to fall by 2.2 per cent this year and 3.4 per cent in 2017, before rising again in 2018. Export growth is forecast to slow to 2.3 per cent this year, then grow by 3 per cent in 2017 and 4 per cent in 2018.

Strong demand from consumers will keep the economy growing, while employment growth will slow but not reverse, the BCC believes.

“Although individual businesses continue to report strong trading conditions, the overall picture suggests a sharp slowdown in UK growth lies ahead,” said the BCC’s boss Adam Marshall.

“Our forecast suggests that the UK is likely to avoid a recession, but with the health warning that businesses are still digesting the result of June’s EU referendum and the challenges and opportunities to come. The value of sterling, the shape of future trade relationships, the status of EU nationals in the UK workforce and other factors will all influence business confidence over the coming quarters.”

He also wants the government to boost investment spending, which includes making a decision on airports expansion, and to cut business rates.

The performance is not as bad as some firms and analysts feared. In the immediate aftermath of the vote some economists said the UK could dive into a recession, but many of those worries have now abated as the economy proved to be resilient.

Business confidence crashed in July according to a survey by Lloyds Bank, but private sector activity rebounded strongly in August.

The monthly study found that every region of England and Wales picked up again last month, sending the purchasing managers’ index to 53.7 – firmly above the 50-level which indicates growth, and a far stronger reading that the 47.4 recorded in July.

July’s survey also indicated that employment was falling for the first time in almost four years, a negative reading which was also reversed in August.

“It’s good to see the measures of business activity rebounding in August with increases across all regions, shaking off the seven-year lows reported last month and back to their highest levels since the first quarter,” said Tim Hinton at Lloyds.

“A weaker pound since June has boosted exports and certain other activities but on the downside, companies have also seen a steep rise in their import and other input costs, putting potential pressure on inflation in the coming months.”

There are some indications of a consumer spending, which was buoyant immediately after the vote, may be moderating. 

Visa’s UK consumer spending index found spending increase by only 0.1 per cent in August compared with the same month of 2015, slowing from growth on 1.6 per cent in the 12 months to July.

Spending on hotels, restaurants and bars grew by 4.3 per cent on the year, while expenditure on transport and communications fell by 4.6 per cent.

Visa’s director Kevin Jenkins said this may be due to a trend for booking holidays in the UK rather than abroad, as flights are included in the transport category.