BCC cuts its forecast for UK economic growth in 2011

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Vauxhall production line at the firm's factory in Ellesmere Port, Cheshire
Image caption,
The BCC wants the government to do more to help firms increase the speed of their growth

The British Chambers of Commerce (BCC) has downgraded its forecast for UK economic growth this year for the third time.

It now expects the economy to expand just 1.1% in 2011, compared with its 1.3% estimate in June and 1.9% at the start of the year.

The BCC said the government's aim to rebalance the economy towards exports and business investment was not happening fast enough.

The Treasury has declined to comment.

'Weak recovery'

BCC director general David Frost said the government had to do more to help companies grow, at the same time as continuing measures to reduce the UK's budget deficit.

He said the government needed to cut the burden of regulation that firms faced.

"The government is right to reduce the deficit, but these measures must be matched by policies to stimulate growth," he said.

Media caption,

BCC director general David Frost: "The economy is weak, we need to get reform"

"If we don't get these policies right, we risk any recovery being weak and short-lived."

Among the changes demanded by the BCC is a simplification of the planning system.

Mr Frost said: "The present system is broken."

He cited the M6 toll motorway in the Midlands as an example: "Only three years to build, 18 years stuck in the planning process.

"At the moment we have a real stand-off. It's holding back economic growth, and we need changes to the planning system to get things moving."

The BCC has also cut its forecast for economic growth in 2012 to 2.1% from 2.2%.

It said that the Bank of England should consider another round of quantitative easing (QE). Under QE, the Bank injects fresh money into the financial system to try to boost bank lending and, in turn, the wider economy.

But one former member of the Bank's Monetary Policy Committee (MPC) said what was needed was an interest rate rise to rein in inflation.

Andrew Sentance, who left the MPC in May, told the BBC's World at One programme that inflation was eating into people's spending power and the MPC should move to curb it.

Eurozone impact

The BCC is just the latest organisation to announce another downgrade of its growth forecast for the UK economy.

Last month, the Bank of England cut its estimate for 2011 to 1.4% from 1.75%, with governor Mervyn King saying the outlook for the global economy had "deteriorated".

He blamed this on the continuing debt woes of numerous national governments in the eurozone, saying that "the risks emanating from the euro area have the potential to have a significant impact on the UK economy".

The situation in the eurozone caused extensive market volatility in August, centred on concerns that Greece's plans to swap its government bonds for others that pay less interest over a longer time-frame will hit the earnings of banks across Europe, including those in the UK.

The knock-on fear was that other governments may ultimately have to follow Greece's lead as they seek to lower their budget deficits and overall debt.

Other bodies that have recently cut their UK economic growth estimates include business group CBI and the National Institute of Economic and Social Research.

The government's Office of Budget Responsibility currently forecasts that the UK economy will expand by 1.7% in 2011.

However, that estimate was made back in March and its chairman, Robert Chote, said in a newspaper interview last month that "there aren't many people" who now believe growth will meet that target.

'No gloom'

The most recent official figures from the Office for National Statistics (ONS) showed that the UK economy expanded by just 0.2% in April to June, down from 0.5% between January and March.

It said that growth in the second quarter was restricted by a number of one-off factors, including the extra bank holiday in April for the royal wedding and the Japanese tsunami affecting the import of car parts from Japan.

However, the UK economy's limited growth also comes as consumer spending continues to be hit by a number of factors, including higher inflation, job losses and limited wage rises.

The ONS said retail spending excluding petrol grew just 0.2% in July, a slowdown from 0.8% in June.

This came as inflation in July, as measured by the government's preferred Consumer Prices Index, increased to 4.4% from 4.2% in June. This is more than double the 2% target rate.

Meanwhile, the number of people unemployed in the UK rose by 38,000 to 2.49 million in the three months to June.

Mr Frost said that while the BCC still expected joblessness to rise over the next three months, it could have been worse.

"[Unemployment] has not risen as much as we thought it would rise," he said. "I don't think the public [cutbacks] have been anything like we expected, and I think business has been holding on to labour."

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