It’s another dim day for the future of the British economy as the British Chambers of Commerce have moved to cut their UK economic growth forecasts, blaming a combination of weaker than predicted trade and manufacturing performance in areas like metals. The business lobby group have made the move which npw means that their growth forecast for 2015 is now set at 2.4%, down from the 2.6% they suggested just a few months ago. In addition, the body have also lowered their forecasts for both 2016 and 2017 to 2.5%, down from the 2.7% recommendation it made previously.
The BCC went on to say that the manufacturing sector, which it suggests has contracted in 2015, has been hit by “falling global prospects” like the struggling Eurozone and Asian financial market issues. Director General John Longworth said "Our persistently weak trade performance and current account balance are impacting our overall growth” and warned that there was “still a long way to go” before the UK recovery was complete.
It’s an announcement that few people will see as a surprise, but it does echo the latest figures from the Office for National Statistics, which showed that exports of goods and services fell by 1.6%, whilst imports rose sharply by 5.4%, leaving Britain with a trade deficit of £4.1 billion.
Whilst most economists are taking something of a dim view to the trade deficit, some institutions are taking it in a more positive light. Namely, the Institute of Directors, who are uncharacteristically positive on their outlook. Allie Renison, the IoD’s head of Europe and Trade Policy said “The trade deficit widened in no small part because companies and households bought more from overseas – pushing up imports, This is no cause for concern and robust demand at home is a sign of confidence in the British economy. It is also encouraging that businesses continue to invest in machinery and equipment from abroad. This may increase our trade deficit, but is clearly a sign that companies are ramping up production.”
Although this is certainly somewhat true, it also highlights the extent to which British manufacturing has been allowed to wither without proper policy support to help it grow in both quality and worldwide stature.
Meanwhile, the Bank of England have announced that interest rate rises will remain on hold this month, as the nine member committee voted eight to one to keep the rate at 0.5%. Notes from that meeting show that the members believed there to be no material difference in terms of changes to either domestic demand or international activity since they last discussed the matter in November of 2015. The more “material news” that had occurred during the last month, they said, was on costs, claiming “The price of oil had fallen markedly again, increasing the likelihood that headline inflation rates would remain subdued, and nominal wage growth had levelled off”.
This announcement puts to bed any hopes that interest rates would increase in time for 2016, and once again throws into doubt the Conservative government’s handling of the economy.