Monday, November 28, 2011

BCC Cut UK economic growth forecast 2012-2013

World Economic outlook - BCC Cut UK economic growth forecast 2012-2013 : The British Chambers of Commerce (BCC) has cut is growth forecast for the UK from now until 2013, due to the continuing uncertainty surrounding the eurozone debt crisis.

These experts reduce their estimate for this year’s UK GDP estimate to 0.9%, from their prior forecast of 1.1%, and warn that they now expect “very weak” growth for 2012, with next year´s forecast dropping to 0.8%, from 2.1% before. For 2013, they cut their forecast to 1.8%, from 2.5%.

In a more optimistic tone, the BCC adds that “although growth is expected to be very weak until mid-2012, the new forecast predicts gradual improvement over time and warns against unjustified gloom about the UK’s economic prospects.”

According to the director general of the BCC, John Longworth, “the challenges facing the UK economy have grown in recent months. Uncertainty surrounding the eurozone will delay a significant upturn in growth until late in 2012.”

Faced with this weak economic outlook, the BBC maintains that the Bank of England will keep interest rates low (at 0.5% until at least the fourth quarter of 2012) and increase the size of its Quantative Easing (QE) programme to £325bn.

The BCC’s chief economist, David Kern, concludes that “with UK growth likely to be minimal in the next two to three quarters, and with the eurozone likely to record negative growth in the near future, we expect the MPC to increase the Quantitative Easing (QE) programme further early in 2012, from £275 to £325 bn.

“However, higher QE on its own will not achieve its full potential without effective measures to improve the flow of credit to businesses, notably viable small and medium enterprises (SMEs).”

With regard to price stability, they expect annual consumer price (CPI) inflation to come in at 4.5% for 2011, 3.3% in 2012 and 2.0% in 2013. In the case of annual average RPI inflation, they are now predicting 5.2% in 2011, 3.5% in 2012 and 2.3% in 2013.

John Longworth states that “we expect inflation to fall sharply, which is positive news for businesses and consumers, but we will be faced with rising unemployment for some time to come.”

In any case, Mr. Longworth concludes that “despite our prediction of slow growth, there is no need for doom and gloom. “The UK economy has the potential to recover and thrive. Our economic prospects will improve, but not overnight.”

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