BCC Quarterly Economic Forecast:

  • UK GDP 2011 growth at 1.1% (from 1.3%); UK GDP 2012 growth at 2.1% (from 2.2%)
  • UK GDP growth will strengthen to 2.5% in 2013
  • UK unemployment will peak at 2.62m in Q4 2012, up from 2.6m in Q2 2012
  • UK public sector borrowing at £126.9 billion in 2011/12, some £5 billion higher than the OBR forecast
  • Interest rates to start rising in August 2012

The British Chambers of Commerce (BCC) today (Thursday) published its new Quarterly Economic Forecast, downgrading its prediction for UK GDP growth in 2011 and 2012. Though growth is expected to be weaker over the short-term, the new forecast predicts a gradual improvement, and warns against unjustified gloom about the UK’s economic prospects.

Key features of the forecast include:

  • GDP growth over the coming quarters will be modest: 0.3% in Q3 2011 and 0.5% in Q4 2011, rising to 0.6% from Q1 2012 onwards. The BCC’s forecast remains lower than the Office for Budget Responsibility’s (OBR), and many others.
  • The BCC expects UK GDP growth of 1.1% in 2011 (down from 1.3%) and 2.1% in 2012 (down from 2.2%), and consumer spending to fall by 1.0% in 2011 (double the previous forecast of a 0.5% fall). UK prospects will improve gradually, with GDP strengthening in 2012 and beyond, rising to 2.5% in 2013. The forecast also predicts annual CPI inflation of 4.4% in 2011 (from 4.5%) and 3.0% in 2012 (from 2.7%).
  • Unemployment is now forecast to peak in Q4 2012, at 2.62 million; in June, we predicted a slightly lower jobless peak of 2.6 million in Q2 2012. But, given the difficult economic background, the expected rise in unemployment is moderate, and the UK labour market is set to remain quite resilient overall.
  • Lower growth prospects, both globally and in the UK, means that official interest rates will need to stay at very low levels for longer than previously envisaged. We expect rates to rise in August 2012, reaching 1% in Q4 2012 and 2.25% in Q4 2013.

Commenting, David Frost, Director General of the British Chambers of Commerce, said:

“The challenges faced by the UK economy are more difficult than first thought at the beginning of the year. Growth will be slow, inflation will remain high, and the number of those out of work will increase. Despite this, there is no need for doom and gloom. We expect prospects to improve over the medium-term, and believe that the UK has the potential to recover and thrive. But this will depend on creating the right conditions for businesses to grow.

“The government is right to reduce the deficit, but these measures must be matched by policies to stimulate growth. The main drivers of UK growth over the next two years will be net exports and, to a lesser degree, business investment. But the re-balancing of the economy towards net exports and investment is not yet happening at an adequate pace.

“We have to get the economy onto a more sustainable long-term footing, and it is business that will help us achieve that. For the government, that means taking a serious look at the infrastructure that supports our businesses, from the education system to transport links, as well as reducing red tape and reforming the planning system, to allow firms to expand and grow. If we don’t get these policies right, we risk any recovery being weak and short-lived.”
David Kern, Chief Economist at the British Chambers of Commerce, said:

“With global prospects worsening, and the UK growing slower than previously envisaged, the economy faces serious challenges. There are painful adjustments ahead, with a decline in living standards, though the recent pessimism from some quarters is unwarranted. UK growth with stay positive, but it won’t be until 2013 that we will see GDP returning to pre-recession levels, and 2014 until consumer spending recovers to its Q1 2008 level.

“In addition to maintaining low interest rates, if weak economic growth continues we expect the MPC to consider increasing the Quantitative Easing (QE) programme from £200 to £250 billion. There may also be a case for action to stimulate stronger bank lending. Regulators could consider temporarily relaxing bank capital requirements, or other measures, which could promote the availability of credit to viable businesses that want to invest.

“Future growth will be constrained by the consequences of the credit bubble and the banking crisis. Reducing high debt levels will be painful and inevitably result in a prolonged period of relatively low economic growth. Although the policy options available are limited, authorities must focus on policies that will enhance the economy's growth potential and enable the UK to regain the productivity losses incurred during the recent recession.”


Notes to editors:

Other features of the forecast:

  • Our GDP forecasts have been revised down compared with our June report, because growth was lower than expected in Q2, and future expansion will be held back more than earlier envisaged by: 1) weaker global growth; 2) fiscal austerity; and 3) the relentless squeeze on personal disposable incomes.
  • With the squeeze on disposable incomes likely to continue, consumer spending will be subdued, increasing in the next two years at a consistently slower pace than total GDP. In annual average terms, we expect consumer spending to decline by 1.0% in 2011, followed by modest growth of 0.8% in 2012 and 1.8% in 2013.
  • The main drivers of UK growth over the next 2 years will be net exports and, to a lesser degree, business investment. But the re-balancing of the economy towards net exports and investment is not yet happening at an adequate pace.
  • On the basis of published figures for April-July 2011, and given our growth forecasts, we expect the Government to exceed slightly (by some 5 billion) its borrowing target for 2011/12. Our Public Sector Net Borrowing (PSNB} forecast is for £126.9 billion, compared with the OBR’s forecast of £121.8 billion. For 2012/13 we are forecasting public sector borrowing of £108 billion, while the OBR has predicted £101 billion for that year. It must be stressed that these differences are small, since the OBR’s growth forecasts underpinning their borrowing figures are higher than our own.


The British Chambers of Commerce (BCC) is the national voice of local business.

The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce, serving over 100,000 businesses across the UK, which employ over five million people.

Media contacts:

Liz Larvin
Tel: 020 7654 5813 / 07825746812
Email: l.larvin@britishchambers.org.uk

Lisa Morrison
Tel: 020 7654 5812 / 07717682221
Email: l.morrison@britishchambers.org.uk