Cuts to hit growth, says BCC

The government’s austerity measures will have a more serious impact on growth in 2011 than expected, claims the British Chambers of Commerce (BCC) as it downgrades its economic forecast for next year.

The BCC has revised down its forecast for GDP growth next year from 2.2 per cent to 1.9 per cent but tips a recovery in 2012, raising expectations from 1.8 per cent to 2.1 per cent. The revisions came before the widely anticipated decision by the Bank of England’s Monetary Policy Committee today to maintain the interest rate at 0.5 per cent.

According to a BCC statement, the change ‘reflects the assessment that the negative impact of the government’s austerity plan will initially be more serious than previously envisaged’. Lower house prices and other signs of ‘financial fragility’ in the UK household sector have been blamed for the downgrade. The worsening eurozone debt crisis will also dampen UK growth prospects next year more than previously expected, the statement says.

The BCC predicts a rebound in 2012, with the UK economy’s longer-term prospects more positive than a few months ago because there is ‘more evidence’ of increased business activity in the private sector. The industry body calls on the government to commit to ‘promoting higher economic growth’ as the country’s main policy priority.

In other forecasts, the BCC predicts total unemployment will rise from 7.7 per cent in September next year to 8.0 per cent in the first half of 2012, and inflation to remain above 3 per cent until the end of next year. The forecast also predicts the interest rate will be kept steady until at least the third quarter of next year.

BCC director general David Frost comments: ‘Deficit reduction on its own will not deliver a sustainable recovery. There must be a relentless focus on ensuring that businesses are able to invest, export and create jobs.'