Economic growth to contract in 2011

Posted on March 9th, 2011 | Categories - News

The UK economy may not grow as quickly as experts predicted.

Predictions on the growth of the British economy have been altered in line with recent GDP figures.

The economy will not grow as much as expected this year but growth in 2012 will surpass predictions according to forecasts from the British Chambers of Commerce (BCC).

The group revised its GDP forecast for 2011 from 1.9% to 1.4% in its quarterly economic paper. This was attributed to the unexpected fall in GDP in the last three months of 2010 and the likelihood that interest rates may be increased in the second quarter of this year – earlier than had previously been planned.

Chief Economist at the BCC David Kern said: “The next few quarters will be risky and growth will likely slow in Q2 and Q3, as the austerity plan is implemented more forcefully. While a new recession can be avoided, economic policy must focus on limiting the risks of a new major setback”.

Despite the poor forecast for this year the group raised its predictions for 2012 from 2.1% to 2.3%. However, it also increased its estimate for unemployment in 2012 to 2.65 million from 2.6 million.

BCC director general David Frost warned that the government must deliver on its promise to support UK businesses to create more jobs: “British businesses will welcome the government’s desire to boost enterprise and reduce red tape but these words must be backed by action. While we support efforts to reduce the UK’s deficit, these measures alone will not deliver a sustainable recovery”.

John Hawksworth, PwC’s chief economist, said: “The Monetary Policy Committee faces a difficult task in balancing upside risks to inflation against downside risks to growth”.

He added: “Our own judgement, however, is that the MPC should not be increasing rates until it is clear that the recovery is secure. We do not believe that it needs to increase interest rates immediately to meet its target of a 2% CPI inflation rate in two years time”.