Weaker than expected net trade is just one of the reasons why the British Chambers of Commerce (BCC) has downgraded its UK GDP growth forecast this week.
The BCC’s prediction has dropped its estimate from 2.6 per cent to 2.4 per cent in 2015 and from 2.7 per cent to 2.5 per cent in 2016 and 2017.
Net trade and weaker than predicted manufacturing figures are contributory factors to the revised forecast, even though the BCC believes the UK economy is set to continue expanding at a moderate pace.
That expansion is thought to be driven by strong growth in the service sector as well as consumer spending.
Among the forecast’s key points include a forecasted growth in the service sector of 2.7 per cent this year and 2.9 per cent for 2016 and 2017.
The manufacturing sector is expected to contract by 0.2 per cent in 2015, followed by growth of 0.7 per cent in 2016, and two per cent in 2017, while the first interest rate increase to 0.75% is expected in Q3 2016.
“Official data is starting to reflect what our Quarterly Economic Survey has been showing all year – that our persistently weak trade performance and current account balance are impacting our overall growth,” said John Longworth, the BCC’s Director General.
“Similarly, the manufacturing sector has been hit badly by falling global prospects, tipping an earlier prediction of growth in 2015 to an expected contraction.
“We cannot rely so heavily on consumer spending to fuel our economy, especially when driven by increased borrowing. We have been down this path before, and know that it leaves individuals and businesses exposed when interest rates do eventually rise.
“Not all debt is bad though. Better access to growth funding and working capital will help UK firms to achieve the scale needed to expand into export markets, which in turn creates jobs and growth at home. Investment in infrastructure is also crucial in enabling businesses to get their goods and services to market.
“The UK still needs to see a fundamental shift in its economic model if we are to remain relevant and prosperous in a changing world economy. Anyone who says that the job is nearly done needs to look again at the trade deficit, current account position and long-term business investment – and realise there’s still a long way to go.
“Government and business need to work together to provide UK firms with support similar to our international competitors if we are to begin to turn the tide of our trade deficit.”