UK economy seen sputtering below pre-pandemic levels until 2024
THE UK will avoid a recession this year, but sluggish growth means the economy will not recover to pre-pandemic levels until the final quarter of 2024, according to the British Chambers of Commerce (BCC).
The business lobby group upgraded its outlook sharply following better-than-expected household spending and investment by firms at the end of 2022, but the economy will still shrink 0.3 per cent this year. In its last quarterly forecast, the BCC expected a 1.3 per cent contraction this year.
The improved outlook, which is better than projected by the Bank of England and the Office for Budget Responsibility, comes just days ahead of the budget when Chancellor of the Exchequer Jeremy Hunt faces difficult choices between driving growth and keeping debt under control.
The BCC urged the government to encourage business to invest or risk the UK being “left behind by our competitors”.
Business investment recovered to pre-pandemic levels at the end of last year, but the BCC expects very weak spending growth of just 0.2 per cent in 2023.
Companies face a jump in corporation tax from 19 per cent to 25 per cent from April, a business rates revaluation and higher interest rates this year.
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“There is currently little incentive for firms to risk ploughing their dwindling cash reserves or fresh loans into new projects,” said Alex Veitch, the BCC’s director of policy.
Hunt is believed to be considering big tax breaks for companies when they invest to replace the super-deduction, which saves companies 25 pence on their tax bill for every £1 (S$1.60) invested.
“Although the economy should now avoid a technical recession, the stark reality is that businesses face a very difficult year ahead,” he said. “Businesses tell us they are most concerned about the difficulties in recruiting staff, paying their energy bills and rising taxes.”
The BCC forecasts the economy to grow 0.6 per cent in 2024 and 0.9 per cent in 2025, and for interest rates to end 2023 at 4.25 per cent, just a quarter of a percentage point higher than the current rate, then fall to 3.25 per cent by the end of 2025.
Inflation will fall to 5 per cent by the end of the year, just meeting the government’s promise of halving it from 10.1 per cent. Unemployment is expected to jump from 3.7 per cent to 4.5 per cent this year and to 4.8 per cent in 2024 before dipping to 4.1 per cent in 2025. BLOOMBERG
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