London - In its first economic forecast since the European Union referendum, the British Chambers of Commerce (BCC) has downgraded its UK GDP growth forecast, from 2.2 percent to 1.8 percent in 2016.
It also lowered its forecast from 2.3 percent to 1 percent for 2017, and from 2.4 percent to 1.8 percent in 2018.
Weaker consumer spending and a large fall in investment were the main reasons for the business group’s downgrading of its growth forecasts. The uncertainty surrounding the UK’s long-term political arrangements with the EU, as well as the timeline over which any actions will take place, are expected to dampen growth prospects towards the end of 2016 and over 2017.
Despite these issues, the UK is expected to skirt with, but avoid, recession. The post-referendum slide in sterling is expected to help improve the UK’s net trade position.
Employment growth is expected to slow in 2017, as uncertainty weighs on recruitment intentions while a further cut in interest rates is expected by the end of the year.
BCC acting director general Adam Marshall, said: “Although individual businesses continue to report strong trading conditions, the overall picture suggests a sharp slowdown in UK growth lies ahead.
"Our forecast suggests that the UK is likely to avoid a recession, but with the health warning that businesses are still digesting the result of June's EU referendum and the challenges and opportunities to come.
"The value of sterling, the shape of future trade relationships, the status of EU nationals in the UK workforce and other factors will all influence business confidence over the coming quarters.
Suren Thiru, BCC head of economics, said: “The downgrades to our growth forecast confirm that the UK economy is set to enter a turbulent period, with growth expected to weaken materially in the near term.
“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.
“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.”