Global slowdown and the scale of ongoing austerity measures will hold back UK growth for the next two years, says the British Chamber of Commerce (BCC).
The BCC downgraded growth forecasts for the British economy to 1.0 percent for 2013 and to 1.8 percent for 2014 citing a subdued household consumption along with the external factors such as the ongoing eurozone debt crisis and weak growth in world trade. The modest growth is against its own earlier prediction of the economy to grow at rates of 1.2 percent and 2.2 percent respectively for the same period.
Though the businesses are resilient and have the ambition to drive national growth, reduced global growth prospects and the possibility of more reductions in public spending may affect the UK recovery in the next two years, feels BCC.
BCC also raised the public sector net borrowing in the 2012-13 year to £104.1bn, a rise of £12bn predicted by the Office for Budget Responsibility (OBR) in March.
"With global growth remaining weak, the rebalancing of the UK economy towards net exports will still happen, but at a slower pace than we previously thought. UK GDP growth in 2013 and 2014 will have to rely more on household consumption. It is critical that further falls in inflation continue to ease the squeeze on disposable incomes and help to sustain domestic demand," said David Kern, BCC chief economist.
BCC's warnings came ahead of the Chancellor's Autumn Statement scheduled to be presented before the House of Commons on 5 December. Indicating a continued period of spending cuts and tax rises for the Britons, George Osborne earlier said taking a U-turn now would be disastrous for the country as it was on the right track in tackling the budget deficit.
Writing in the Sun ahead of the mini budget, the Chancellor said the country was able to reduce the deficit by a quarter in just two years.
But, "the scale of the challenge has been greater than anyone thought. As a result it is taking longer than we hoped to put things right,".
However, BCC raised its growth forecast for 2012 from a negative 0.4 percent to -0.1 percent which it attributed to the 1.0 percent GDP growth recorded for the third quarter due to special factors such as the Jubilee and the Olympics which helped Britain to bounce back to growth from two recessions in four years.
Unemployment to Rise
BCC expects UK unemployment to increase from 2.5 million (7.8 percent of the workforce) to a peak of 2.65 million (8.1 percent of the workforce) in the final quarter of 2013, a net increase of 136,000 in the jobless total.
Though it is 100,000 lower than the previous forecast in September, the organisation says the new jobs created will not be enough to absorb the increasing number of job seekers.
"The fact remains that growth is still too weak. …more must be done to support the aspirations of growing companies that will be the wealth creators of tomorrow," said John Longworth, Director General of BBC.
BCC urged the Chancellor to initiate bold measures to support growth, job creation, exports, investments and business confidence.