UK economy growth to slow in 2011 - Chambers of Commerce

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Image caption Unemployment will fall in the second half of 2012, the BCC report predicts

The economy will grow by less than expected next year, but growth in 2012 will be better than predicted, the British Chambers of Commerce forecasts.

It downgraded its forecast for the UK's GDP growth in 2011 from the 2.2% it predicted in September to 1.9% now.

The BCC blamed the eurozone debt crisis, austerity cuts, weak housing market and VAT rise from 17.5% to 20%.

The Office for Budget Responsibility (OBR) recently downgraded its 2011 growth forecast from 2.3% to 2.1%.

The BCC was even more bearish, suggesting year-on-year growth will slow from 3% in the final quarter of 2010 to 1.4% in the second half of next year.

Business tax

But it said the economy was sufficiently robust to avoid slipping back into recession - and was more upbeat moving forward because of private sector growth.

It upgraded its GDP growth forecasts for 2012 from 1.8% to 2.1% - but that was still significantly lower than the OBR's 2.6% estimate.

The BCC, which represents hundreds of small businesses, also reduced its unemployment forecast for the second half of 2012, estimating the number of people out of work to fall by 50,000 to 2.6 million.

Inflation, meanwhile, would remain above 3% for the whole of 2011, it added.

BCC director general David Frost said: "British business is willing and able to drive the recovery, but it can only do so if the government will back its words with deeds.

"The government must avoid at all costs new business taxes and measures that damage initiative, enterprise and innovation."

He predicted the Bank of England will keep interest rates on hold at 0.5% next week, and will continue to hold them at historically low levels until at least the second half of 2011.

Stimulating growth

There are concerns that government spending cuts and tax rises, including the VAT increase in January, will undermine the recovery.

The UK economy grew by 0.8% between July and September, but most economists expect this rate to slow once the government's austerity measures kick in.

One of reasons is increased unemployment through public sector job losses as a result of the spending cuts.

For this reason, Mr Frost said he expected the Bank of England to pump more money into the economy to stimulate growth next year - a process known as quantitative easing.

The Bank has already committed £200bn to quantitative easing in order to boost the recovery.

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