We welcome the BCC assessment of growth in the UK economy. Our more detailed quarterly economic forecast will be released next month. Growth in the UK this year is likely to be just over 3% with strong growth continuing into 2015. We base our assessment on latest readings from the Manchester Index™ and our Quarterly Economic Survey data.
We believe John Longworth is right to emphasise a government focus on infrastructure and access to finance particularly in export finance. However we also accept David Kern’s concerns about the geo political threats from the Ukraine, the Middle East to which we would add potential choppy waters in the South China Seas.
We have always been realistic about export performance …
BCC may be disappointed about the prospects for export growth but our models have long been more realistic about the prospects for export rebalancing and the elusive £1trillion target by 2020.
More optimistic about investment and Capital Stock …
In investment, we are more optimistic about the assessment of investment and productive capital stock in the UK. The fall in investment can be largely attributed to property and commercial real estate collapse. Our four year and ten year capital stock models suggest there has been no significant loss to output capacity in the manufacturing sector specifically. Our surveys relating to capacity utilisation and investment intentions suggest a strong rally in investment over the next three years.
Interest rates - Flip Flops the footwear of choice for central bankers
Interest rates are likely to rise in the first quarter of 2015. However we caution flip flops are becoming footwear of choice for central bankers in the UK and the USA. Although some may call for an interest rate rise before the end of the year, the Bank of England will be unwilling to act ahead of the Fed. David Kern’s forecast of an interest rate rise in the first quarter appears sound.
John Longworth suggests “We must ensure the stellar growth is not a flash in the pan”. A realistic assessment of policy objectives will help. The service sector will continue to drive output in the economy, with assistance from a strong recovery in housing and construction. Investment will follow but exports will fail to provide a solution to growth. Nevertheless we predict strong growth this year of just over 3% continuing into next year.
To read the British Chambers of Commerce Economic Forecast, click here.