Chambers of Commerce cut forecast

The BCC says Britain's economic recovery started in the fourth quarter of last year, but GDP growth will be modest and below the historical average over the next few years

Unemployment figures

Unemployment is likely to rise further in the next 6-9 months, and employment will continue to fall but at a slower pace. "Our new forecast envisages that total unemployment will increase from 2.46 million (7.8% of the workforce), to a peak of 2.65 million (8.4% of the workforce) in the third quarter of 2010."

The BCC forecasts that public sector borrowing will total £163bn (11.6% of GDP) in 2009-10, and £165bn in 2010-11, before easing to £147bn in 2011-12. "We expect lower initial deficits than the Treasury predicted in the Pre-Budget Report: £178bn for 2009-10 and £176bn for 2010-11," it says.

But the BBC warns that from 2011 onwards, the Treasury's forecasts are too optimistic. "The UK's public finances are on an unsustainable medium-term path, with net public sector debt set to increase to dangerous levels in excess of 80% of GDP," the BCC says.

Bank of England

The forecast assumes that the Monetary Policy Committee (MPC) will maintain the £200bn currently allocated to the Quantitative Easing (QE) programme over the next few months.

"We expect the UK Bank Rate to remain at 0.5% until Q3 2010; thereafter, we forecast modest and gradual increases, to 1% in Q4 2010 and to 2.50% in Q4 2011," the BCC says.

BCC director general David Frost, 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.

Budget for business

"The government must use the forthcoming Budget as a platform for laying the foundations for a business-led recovery. If it fails to do so, the recovery will take longer to gain momentum and may even slip into reverse.

"New business taxes must be avoided and unnecessary red tape suspended. The 1% hike in employer National Insurance Contributions, planned for April 2011, should be abandoned immediately as it is a tax on jobs, which will cost firms £4.7bn every year.

"Raising VAT by one percentage point, to 18.5%, will largely offset any lost revenue and it will be less damaging to business.

Cut public borrowing

"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."

BCC chief economist, David Kern, said: "A large part of Britain's budget deficit is structural rather than cyclical. This structural element will still persist even after the economy returns to normal growth.

Structural deficit

"The financial crisis and the recession added £73bn, or 5.2% of GDP, to Britain's structural deficit, mainly due to the permanent loss suffered by the economy's productive potential.

"Cutting the deficit too early would be a major mistake that could unleash a new recession. However, a credible plan for curbing the deficit is urgently needed. Postponing the presentation of a plan would threaten our credit rating with damaging consequences.

"Any serious plan must spell out detailed measures with a clear timetable, and it must avoid damaging the economy's growth potential. Freezing the total public sector wage bill and bringing public pensions into line with the private sector must be part of that plan.

Links (new windows)

BCC
BCC forecast PDF