Recovery to be fragile and slower than expected

The British Chambers of Commerce (BCC) has revised its forecast for the UK's economic recovery, saying that the rate of growth will be slower in 2011 than had been anticipated.

The BCC had predicted growth of 2.3 per cent for 2011 but in its latest economic forecast has downgraded that figure to 2.1 per cent.

The business group held to its prediction for GDP expansion of 1 per cent in 2010.

The BCC cited greater "obstacles" to growth as the reason for its revision and warned against the threat of a double-dip recession.

There is, however, better news on the employment front as far as the BCC is concerned.

In the same report, it estimated that unemployment is likely to rise in the next 6-9 months. But the new forecast envisaged total unemployment climbing from 2.46 million to a peak of 2.65 million in the third quarter of 2010. In December, the BCC predicted a slightly higher jobless peak of 2.7 million.

On public borrowing, the BCC said that the Chancellor would be likely to undershoot his predictions for both 2009/10 and 2010/11, with figures of £163 billion and £165 billion respectively compared with Mr Darling's anticipated £178 billion and £176 billion.

But the BCC questioned the Treasury's public finance forecasts from 2011 onwards, describing them as "too optimistic". Whereas the government sees borrowing down to £140 billion for 2011/12, the BCC put the figure at £147 billion.

David Frost, the BCC's director general, said: "The recession may have technically ended, but there is no room for complacency. For the recovery to be sustained, it is crucial that all the political parties recognise the vital role of wealth-creating businesses in driving economic growth and job creation."

Mr Frost urged that the Budget be used as a platform for laying the foundations for a business-led recovery, with failure to do so running the risk of a loss of momentum and the possibility of dipping back into recession.

The BCC wants the government to abandon the planned 1 per cent rise in NICs, but to raise VAT to 18.5 per cent instead.

Mr Frost continued: "The vital medium-term reduction in government debt and borrowing should entail curbing public spending in all areas except for key infrastructure expenditure, which will act to boost long-term growth and employment across the country.

"A credible deficit-reduction plan, which both business and the markets can accept as realistic, must avoid stifling the economy's growth potential, and it absolutely must enable companies to invest and export."

David Kern, the BCC's chief economist, added: "The UK's economic prospects remain uncertain, our recovery is fragile and risks of a relapse are high. Threats of a double-dip recession are greater in the near future than the dangers of higher inflation."

The UK's position, Mr Kern pointed out, is not worse than that of many other European economies, and the BCC expects a relatively strong bounce back in Britain's GDP, driven mainly by stocks and the emergency stimulus packages.

But Mr Kern also argued that such factors are temporary and longer-term growth prospects remain weak.

Mr Kern concluded: "Over the next four or five years, GDP growth is likely to average just under 2 per cent per annum, considerably less than the 2.7 per cent average growth recorded in the period 2003-07. Against this background, it is vital to ensure that wealth-creating businesses have adequate capacity to respond to an upturn in demand when the recovery strengthens."