The fall in sterling following last year’s EU referendum has failed to boost UK economic growth, the British Chambers of Commerce said on Friday. The business group said there was “no sign on the horizon of a return to healthier levels of growth” as it published its latest quarterly forecasts.
The pessimistic outlook stems from the BCC’s assessment that the disappointing economic response to sterling’s fall since last year’s EU referendum will continue. Politicians and economists had previously hoped that the weak pound would boost British exports.
The rising upfront cost of doing business in the UK, the uncertainty around Brexit, and the constraints created by skills gaps and shoddy infrastructure collectively outweigh any benefit arising from the recent depreciation of sterling. A cheaper currency does not automatically mean an export boom, no matter how some politicians and commentators will it to happen.
The BCC also warned the British government that a swift Brexit transition deal was needed to enable progress toward securing a future EU-UK trading relationship, otherwise there would be a far more marked weakening in economic conditions.
The business group’s latest quarterly forecasts are not dramatically different to those published three months ago. Growth is now expected to be marginally higher this year, with downgrades for next year and 2019.
The BCC expects the economy to expand 1.6 per cent this year, compared with its previous forecast of 1.5 per cent, following stronger household consumption than expected in the first half of the year. This brings the BCC’s forecast in line with the consensus of independent forecasters, but its projection is considerably more pessimistic than that of the Office for Budget Responsibility, which is still expecting 2 per cent growth this year.
The OBR has not yet revised its forecast to reflect relatively weak growth in the first and second quarters of this year. The OBR will next publish its updated forecasts in the Autumn Budget.
For next year, the BCC has cut its growth forecast from 1.3 per cent to 1.2 per cent. For 2019, it revised its expectations down from 1.5 per cent growth to 1.4 per cent.
The medium-term growth forecasts are considerably weaker than the consensus of forecasters and the OBR, reflecting what the BCC thinks is the new “slow-growth trajectory” of the UK economy.
The business group made the medium-term downgrades off the back of slightly weaker consumer and investment spending figures, as well as the mounting evidence that
households and companies are not rushing to replace imports with domestically produced goods and services.
The BCC’s pessimism about the likelihood of trade boosting economic growth in 2018 is the main reason why its growth forecast differs from the other forecasters in their medium-term outlooks.
The business group’s view is also significantly more pessimistic than official forecasting bodies, such as the Bank of England, OBR and International Monetary Fund, which all expect growth of between 1.5 and 1.6 per cent next year.