Economic Recovery Will be Faster than Expected
The UK economy will make a faster recovery than expected in 2010 and grow by almost twice the rate that was predicted in June, the British Chambers of Commerce (BCC) has forecast.
The business group has revised its June forecast that the UK economy would only grow by 0.6 per cent next year, and predicted that GDP will increase by 1.1 per cent in 2010. This is compared to a predicted decline of 4.3 per cent in 2009.
According to the BCC, Government initiatives and quantitative easing (pumping money into the economy to help its revival) are helping to contribute to a more rapid recovery.
“We expect the economy to make a faster return to growth than we originally thought,” said BCC spokesman, Sam Turvey.
However, Turvey added that the pace of recovery is likely to be slow by the UK’s pre-recession standards due to high levels of consumer debt, high unemployment, weak bank lending and the need to reduce Government borrowing and debt.
“Businesses have done all they can to cut their costs, and the Government needs to put the environment in place for them to grow and thrive,” he said. “The current £175 billion quantitative easing programme should be increased to £200 billion to ensure the economy doesn’t have a relapse.”
The BCC also warned that the Government and the Bank of England’s Monetary Policy Committee must do all they can to prevent this being a temporary recovery followed by another fall (“a W-shaped recession”).
“They must avoid introducing new business taxes and keep interest rates low,” said Turvey. “National insurance contributions are going to increase in 2011 and that’s going to damage employment prospects, so that should be scrapped.”
He added that the Government should have a clear plan in place to cut public spending after the recession.
“We wouldn’t want the Government to cut spending during a recession because that leads to a risk of relapse, but they certainly need to have a credible, transparent plan for how they are going to return the public finances to health in the upturn,” said Turvey. “They need to make tough decisions on spending cuts in education and health. Spending needs to be retained for business infrastructure because without that, recovery will be stifled.”
No Government spokesperson was available to comment on the BCC’s forecasts.
According to recent research from the Organisation for Economic Co-operation and Development (OECD), the UK economy will shrink by 4.7 per cent this year.