The British Chambers of Commerce has downgraded its economic growth forecast for the UK economy, with rising inflation and squeezed household incomes to blame.
It is now forecasting 1.3% economic growth this year, down from a previous forecast of 1.4% for 2011.
Looking ahead to 2012, it is forecasting growth of 2.2%. It was previously forecasting economic growth of 2.3% for next year.
These more pessimistic forecasts contrast with the official forecast from the Office of Budget Responsibility which suggests economic growth in the UK of 1.7% this year.
There are some important messages behind these economic growth forecasts.
The BCC believes that the government is right to continue cutting public spending in order to reign in the budget deficit.
Looking at unemployment, it expects the number of people out of work to fall slightly from 2.65m to 2.6m by the middle of 2012. The government is likely to be satisfied with that forecast at a time when the UK economy is being ‘rebalanced’, with employment shifting from the public to private sector.
On interest rates, the BCC expects to see the Bank Rate reach 1% by the end of this year.
This is due to a higher inflation forecast which will force the Bank of England to increase rates earlier than previously predicted by the BCC. They believe that rates will now start to increase from August.
All eyes now are on the GDP figures for the second quarter of 2011, which will be interesting due to the plethora of Bank Holidays and lost working days experienced in April.
Once these preliminary figures are made available, we should start to form a better picture of where the UK economy is heading for the rest of the year.
Photo credit: Flickr/Laenulfean
