The British Chamber of Commerce (BCC), an influential business trade body, has drastically cut growth forecasts for Britain’s economy in the wake of Brexit.
In its first update since the vote to leave the European Union, the BCC on Monday cut its GDP growth forecasts from 2.2% to 1.8% this year, from 2.3% to 1% in 2017, and from 2.4% to 1.8% in 2018.
The revisions mean Britain’s economy is set to be £43.8 billion ($58.1 billion) smaller than the BCC had originally forecast by the time 2019 rolls around.
Business Insider has made the point before that Brexit’s economic impact is more likely to be on lost growth rather than businesses pulling jobs out of the country.
While the BCC’s original forecasts are unlikely to have been 100% accurate — forecasting is a tricky business — the scale of the revisions shows just how seriously businesses view the impact of Brexit.
Suren Thiru, BCC’s head of economics, explains why the group believes its previously forecast growth will go up in smoke, saying in a statement:
“Mounting uncertainty is likely to put a brake on investment, while rising inflation and moderately weaker labour market conditions are expected to stifle consumer spending. On the upside, the UK’s net trade position is expected to be boosted by the post-referendum slide in the value of sterling.
“Despite the likely improvement in the UK’s trade position, the significant imbalances currently facing the UK economy are expected to persist through the forecast period, with a continued over-reliance on services and consumer spending as key determinants of UK economic growth.”
Thiru says exporters are likely to get a boost from the weak pound but warns that “the significant imbalances currently facing the UK economy are expected to persist through the forecast period, with a continued over-reliance on services and consumer spending as key determinants of UK economic growth.”
He reserves his most worrying statement for last, saying (emphasis ours):
“While the longer-term outlook for the UK economy is highly uncertain the risks are on balance tilted to the downside, with the deep-rooted structural issues, such the size of the UK’s current account deficit, leaving the UK increasingly exposed to economic shocks.”
While exporters may get a boost from the weak pound, that is unlikely to balance out a serious slowdown in the UK’s dominant services sector, much of which cannot easily be exported. So the economy is much more likely to suffer from Brexit overall than benefit.
However, the silver lining to all this is that the BCC expects the UK to avoid a recession. The BCC joins Credit Suisse and Morgan Stanley in saying this, both of which recently reversed earlier positions to say the UK will simply suffer a sharp growth slowdown rather than outright recession.
Dr. Adam Marshall, Acting Director General of the British Chambers of Commerce, says in a statement: “Although individual businesses continue to report strong trading conditions, the overall picture suggests a sharp slowdown in UK growth lies ahead.”
The BCC represents thousands of businesses from across the UK covering a variety of sectors.
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