Brexit uncertainty has left the UK is facing its weakest growth since the financial crisis, according to a new economic forecast. The services sector looks to be struggling in particular, as a floundering retail segment and a financial sector increasingly concerned over its access to the continent weigh up their post-EU futures.
The British Chambers of Commerce (BCC) has warned that UK growth could hit its lowest levels since 2009, as the organisation downgraded its growth forecast by 0.1%. While the fall from 1.4% to 1.3% might seem trivial to some, it would place the UK’s economy at its lowest point in nine years; a time when it had just been rocked by the great recession of 2008. The growth rate expected by the BCC has also fallen from 1.5% to 1.4% in 2019, while its 1.6% forecast in 2020 stands unchanged.
The BCC is the national representative body of 52 Accredited Chambers of Commerce across the UK. The organisation represents around 75,000 businesses, which employ over 5 million people across the country, and it fears that consumer spending, business investment and trade are all weakening, leading to weak wage growth and households scaling back spending.
Unemployment is expected to remain at 4.4% in 2018, having been celebrated as being at a 40 year low since last year, however meager wage increases mean that the average income will only narrowly outpace inflation over the next three years. Earnings are projected to grow at 2.7%, 2.9%, and 3.0%, compared with inflation of 2.5%, 2.3%, and 1.9%, which will likely see household spending slow to 1.0%. While the following years are anticipated to see a narrow rise in such spending to 1.4% in 2019 and 1.7% in 2020 respectively, further fluctuations in the value of the pound, and a potential rise of 0.1% in unemployment as of 2019 could impact this growth negatively.
The construction sector has seen a troubled 2018 already, with the collapse of major outsource Carillion and a number of other smaller entities reflecting depleted demand in the market. Now, the BCC suggests that the sector’s growth will slow significantly in 2018 to just 0.7% growth, compared to 5.7% in 2017. While, again, the construction market is expected to pick up slightly in the remainder of the forecast period, with 1.3% and 1.5% growth in 2019 and 2020 respectively, this is still a fraction of the expansion experienced in the previous year.
Perhaps most worryingly for British businesses and authorities, however, is that it is the service sector in particular which the BCC anticipates will struggle in coming months. The tertiary sector is the one which the UK is most banking on to make a success of Brexit, with activities in the tertiary sector include retail, banks, hotels, real estate, education, health, social work, computer services, recreation, media, communications, electricity, gas and water supply.
On the contrary, however, previous warnings from the likes of the Royal Institute of British Architects, and a prediction from the Bank of England that around 75,000 financial services jobs could leave London post-Brexit have long suggested otherwise. On top of this, the UK high street has been hit by a litany of administrations, as it has been hit by the aforementioned slowing in demand from consumers. Now, the BCC anticipates that the services sector as a whole will see growth of 1.2% in 2018, lower than the national average, before only matching the figures of the beleaguered construction sector in 2019 and 2020.
Last year, Big Four firm EY found that the UK had enjoyed a rise in exports of 3.3%, before predicting a rise of 5.2% in the year to come, as the UK’s competitive exports market made it attractive to foreign investors. However, the growing potential for a ‘Hard Brexit’, with aggressive tariffs being imposed on such trade, has seen the BCC anticipate much lower export growth of 2.8% in 2018, 2.9% in 2019, and 2.9% in 2020, as trading partners look to source goods from within the EU to avoid being stung with bills later on. Meanwhile, import growth in the UK is anticipated to be slower this year, at 1.7%, and 2.5% in 2019, but will outpace exports at 3.0% in 2020.
At the same time, business investment is expected to remain weak, with growth across the forecast period of 0.9% in 2018, 1.2% in 2019, and 1.7% in 2020. This supports a recent study from A.T. Kearney, which suggested that the hurdles presented by Brexit could impact on the willingness of foreign companies in particular to invest in British businesses. Regarding the UK as a potential destination, investors are 22% less optimistic now than at the same juncture in 2017, the worst percentage of any nation in the study.
Commenting on the BCC’s troubling predictions, Adam Marshall, the organisation’s Director General, said the forecast should act as a wake-up call to the government. He elaborated, “A decade on from the start of the financial crisis, the UK now faces another extended period of weak growth amidst a backdrop of both domestic and global uncertainty.”
“With firms facing ongoing Brexit uncertainty, increasing global protectionism and instability in some parts of the world that will impact on costs and profits, now is the time for more robust action to support business confidence and investment.”
Sourced from Consultancy UK