December 7, 2023
The British Chambers of Commerce (BCC) has marginally upgraded its 2023 and 2024 GDP forecast but lowered the outlook for 2025, as economic growth for all three years flatlines.
The BCC’s Quarterly Economic Forecast, ranked joint second most accurate by the Sunday Times, predicts the UK will remain in the slow lane.
UK Economic Outlook
The UK economy looks set to continue expanding until the end of 2025, but growth will remain very sluggish. A growth rate of 0.6% is now expected for the whole of 2023, dropping to 0.4% in 2024, and nudging up only slightly to 0.6% in 2025. Prolonged high interest rates, trade barriers, particularly with the EU, and limits on consumer spending are all seen to feed into a low growth climate.
Despite core inflation now outpacing the headline CPI rate, BCC research indicates the proportion of firms expecting their prices to rise is continuing to fall. The forecast for the CPI rate is now 4.6% in Q4 2023, 3.1% in Q4 2024, and 1.9% in Q4 2025, when it finally slips below the Bank of England’s 2% target.
Slight upwards revision to GDP
Although ONS revisions have revealed the economy recovered from the pandemic much faster than originally estimated, the momentum has been lost. While the start of 2023 turned out better than expected, the second half of the year has been lacklustre, leading to overall growth of 0.6% for the year.
And with interest rates now predicted to fall only slightly in 2024 and business confidence failing to take off, the BCC expects the economy to grow by just 0.4% in 2024 and 0.6% in 2025.
This is a slight increase for 2024 and a similar decrease for 2025, from the BCC’s previous Q3 forecast of 0.3% and 0.7% respectively.
Weak levels of growth in household consumption and a forecast of a reduction in overall real terms Government spending in 2023 and 2024, are also factors in this shaky performance.
Although disposable incomes are now above pre-pandemic levels, households are spending less than they did then, suggesting high interest rates, inflation and global headwinds are weighing on consumer confidence.
Trade is also likely to continue to suffer, with export growth of just 0.5% and 1.2% in the next two years, following a contraction of 0.5% this year. Imports are similarly lacklustre, with further regulatory changes at the UK and EU borders weighing on trade flows.
Against this background, the BCC expects business investment to contract by 0.8% in 2024, a downward revision from –0.1% in Q3, before rebounding to 1.2% in 2025.
Average earnings to perform more strongly
Despite the gloomy economic outlook, average earnings are now expected to grow more strongly than inflation across the forecast period, with growth of 5.5% in Q4 2023, followed by 3.5% in Q4 2024 and 2.5% at the end of 2025.
With core inflation remaining stubborn, and fears that wages could continue to put upward pressure on prices, the Bank of England interest rate is expected to fall only slowly – reaching 4.25% in Q4 2025.
Further growth in unemployment rate
While the number of vacancies continues to decline and demand remains subdued, the unemployment rate is also expected to stay higher for longer, hitting 4.8% by the end of 2025. However, this cooling of the labour market is yet to translate into any significant easing of the recruitment difficulties felt by firms, with BCC research showing the hospitality, construction and manufacturing sectors all struggling.
Commenting on the forecast, Vicky Pryce, Chair of the BCC Economic Advisory Council, said: “The BCC’s latest forecast shows the UK economy has yet to find a way to break out of its current rut. While it’s welcome that GDP should continue to expand there is an underlying fragility that is eroding confidence.
“The Government set out several pro-growth measures in the Autumn Statement, but businesses and consumers have had their fingers badly burned by the pandemic and ensuing economic shocks.
“It will take a Herculean effort to shift the dial on investment and consumer spending, against that background, and inject some much-needed vitality.
“The minimum wage increase early next year will further impact investment concerns among businesses, as cost pressures rise.
“As we head towards an election next year, politicians will have to show how they will work with the business community to build on the Autumn Statement commitments and develop a much-needed long term economic plan to give companies confidence to invest in people, trade and grow."
David Bharier, Head of Research at the British Chambers of Commerce, said: “The UK economy is one of the most advanced and innovative in the world. However, the cumulative effect of three years of economic shocks ranging from Covid to Brexit, as well as policy uncertainty, have significantly weighed down on our ability to grow further.
“Steps like making full expensing permanent, and pledges to improve planning and grid connectivity can all make a difference. Long term business and investor confidence can only come from a clear plan for infrastructure, skills, trade, and technology.
“The BCC has long called for a longer-term plan from Government, otherwise any bump from the Autumn Statement will soon be lost.”
More details for the Q4 QES can be found here.