Small recovery expected but strong growth to remain elusive, says BCC

The British Chambers of Commerce (BCC) has published its quarterly economic forecast for Q1 2024, featuring slightly upgraded growth expectations.

But with the UK now in a technical recession, the country’s growth profile is likely to remain low, as the BCC forecasts 0.5 per cent GDP growth for 2024 and 0.7 per cent for 2025.

Interest rates are now on their way down, but slowly – the BCC expects CPI at 2.3 per cent in Q4 2024, 2.1 per cent in Q4 2025 and 2.2 per cent in 2026, remaining always slightly above the Bank of England’s 2.0 per cent target.

This comes as average earnings continue to outperform inflation, though the unemployment rate looks to increase slightly to 4.2 per cent this year.

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And despite disposable incomes now exceeding pre-pandemic levels, households are still spending less than they did in 2019.

Meanwhile, conflicts in the Middle East and Europe continue to impact trade, with exports set to fall 1.3 per cent in 2024 before rising by 1.1 per cent and 1.7 per cent in 2025 and 2026 respectively. Imports, on the other hand, will remain lacklustre.

Vicky Pryce, chair of the BCC Economic Advisory Council, said: “The BCC’s latest forecast shows the economy is still searching for the way out of its current malaise.

“While it’s welcome that GDP looks set to grow, the lack of momentum indicates some fragility.

“Pro-growth measures from the Autumn Statement may take time to have an impact and business and consumer confidence are rebuilding from a low base.

“With interest rates falling only slowly and minimum wages rising in April as pay, in general, outstrips inflation, businesses are unlikely to fully turn on the taps to fresh investment.

“With a general election on the horizon, politicians will need to demonstrate to firms that they have a sustainable long term economic plan that plays to the UK’s strengths and gives companies confidence.

“But unless the base interest rate starts to fall more sharply the economy is likely to remain close to stagnation.” 

And as the Spring Budget approaches, David Bharier, head of research at the BCC, emphasised the need for long-term investment through a clear plan for the national economy.

“With the current forecast expecting less than 1 per cent growth over the next two years, it’s not obvious where large-scale economic growth in the UK will come from”, he added.

“Our research is clear about the issues UK SMEs face – skills shortages, high inflation that eats at margins, high interest rates that make borrowing harder, and trade barriers with the European Union, which all hit investment.

“Some sectors, such as retailers and hospitality, have been facing recession-like conditions since the onset of Covid lockdowns in 2020.

“The upcoming budget will need to focus on reform of business rates, a more effective planning system, improving access to skills, and reviewing the current £85k VAT registration threshold to ensure this is not a barrier to growth.”

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