The British Chambers of Commerce (BCC) upgrades its 2023 GDP forecast to 0.3%, but economic activity will remain weak throughout the year, according to the organisation’s latest Quarterly Economic Forecast.
UK Economic Outlook
The UK economy remains on course to avoid a technical recession. A growth rate of 0.3% is expected for the whole of 2023, rising slightly to 0.6% in 2024, and 1.0% in 2025.
BCC’s programme of business surveys show that inflation remains the top concern for UK firms. The forecast for the CPI rate remains unchanged from the previous forecast at 5.0% in Q4 2023.
Slight upwards revision to GDP
In the short term, the BCC is expecting quarterly GDP to remain flat throughout 2023, with three quarters of 0.1% growth and one quarter of no growth – leading to overall growth of 0.3% for the year. This is in line with the Bank of England’s forecast, but more optimistic than the OBR’s. The BCC expects the economy to grow by 0.6% in 2024.
The slight upwards revision from the BCC’s previous Q1 forecast of -0.3% to 0.3% is due to higher levels of household spending and recent increases in overall business investment. Evidence from recent BCC business surveys also showed a rebounding of business confidence at the start of 2023.
However, despite greater political stability, stubbornly high inflation rates and labour market shortages continue to weigh on growth. Export activity fell back at the end of 2022 as global supply chain crises and trade barriers with the EU disproportionately impacted smaller exporters. Exports are likely to decline by 4.7% across 2023, a downwards revision from the previous forecast.
The latest Quarterly Economic Survey shows a significant uptick in business confidence from 2022 levels. This is likely to result in increased investment, with the BCC now predicting business investment to grow by 1.3% in 2023, an upwards revision from the previously predicted level of 0.2%.
Inflation forecast remains unchanged
Inflation remains among the top concern for UK businesses, and the forecast for the CPI rate remains unchanged from the previous forecast of 5.0% in Q4 2023. It is expected to continue to slow, and drop below the Bank of England’s target, to 1.5% in Q4 2024.
Average earnings are expected to grow by 4.5% in 2023 and will lag behind inflation until 2024 when they will increase by 2.6%.
While energy and commodity prices begin to ease, core inflation remains stubborn. The Bank of England interest rate is expected to peak at 4.75% in the second half of 2023, higher than the previous forecast of 4.25%. It is expected to fall to 4% in 2024, and 3.75% in 2025.
Modest revisions to investment and household spending, with Government spending contracting
Overall investment is expected to increase by 0.7% in 2023, up from the previous forecast of -1.5%. Household consumption has also been revised upwards, from -0.4% to 0.2% for 2023. However, Government spending is expected to contract significantly by 4.1%, down from the previous prediction of 1.8% growth.
The picture for 2024 is more uncertain, with investment predicted to contract by 0.4% in the year. General Government spending is also expected to contract again, this time by 1.9% across the year.
Slight growth in unemployment rate
The labour market is expected to remain tight as a record number of organisations report recruitment difficulties in the BCC’s business surveys, particularly in the hospitality, retail, and manufacturing sectors. However, some modest growth in the unemployment rate is expected, rising to 4.1% in 2023 and 4.4% in 2024 as the number of vacancies begins to fall.
Commenting on the forecast, Vicky Pryce, Senior Member of the BCC Economic Advisory Council, said:
“Today’s forecast from the BCC shows that we are on course to only narrowly avoid a recession. With anaemic growth rates predicted into the future, there is a real danger of slipping back into recession territory at any point.
“The risk of recession creates greater uncertainty for firms, with the level of business investment likely to remain low despite Government support. These figures will give businesses little comfort, with some of the forecasts making for very concerning reading about the future state of our economy against a still challenging international environment.”
David Bharier, Head of Research at the British Chambers of Commerce, said:
“UK growth expectations have been upgraded slightly following the easing of political turbulence of 2022 and a rebounding of business confidence at the start of the year.
“However, a high degree of uncertainty hangs over the UK economy. Most SMEs continue to report the toughest trading conditions in years, with stubbornly high inflation, record tightness in the labour market, and the creation of trade barriers with the EU. This amounts to very low levels of growth with our research showing that most firms are still not increasing their investment.
“The current trajectory of anaemic growth is unlikely to change unless there are significant changes to the external environment, particularly in the ability of firms to recruit and export. Enabling firms to have greater access to the skilled people they need, reducing trade barriers, and creating a stable policy and tax environment will be essential to tapping into investment.”