Action call as British Chambers of Commerce cuts growth forecast

Business leaders urged the Government to show some “backbone” and drive economic growth today after they slashed their forecasts for this year and next.

The British Chambers of Commerce (BCC), which represents more than 100,000 UK firms, now believes there will be no growth this year, as output will shrink by 0.4% before a rise of 1.2% next year, compared with its 1.9% forecast in June.

It wants immediate action to lift the economy from "a vicious cycle of stagnation" by giving firms bigger tax breaks for spending on plant and machinery, as well as by lowering National Insurance contributions to encourage job creation and providing more support for housebuilders.

The BCC had already called for a long-term plan, such as boosting infrastructure spending and creating a state-backed business bank, but now believes a short-term stimulus package is also needed.

And it called on the Government to stick to its deficit reduction measures by slashing spending - particularly welfare and pensions - to reallocate funds towards boosting investment.

It argued that abandoning the deficit reduction plan would risk losing the UK's cherished AAA credit rating, but so would continued above-target borrowing figures caused by weak growth.

BCC director general John Longworth said: "Politicians need to get some political backbone and show leadership.

"We are a great country, as we demonstrated during the Olympics - we have the talent and the energy but we need the political will to focus relentlessly on economic growth.

"We need an economic action programme so that Britain can excel and make its way in the world.

"It's not that nothing else matters, it's that without it, nothing else is possible."

He said this would not constitute a Plan A, or a Plan B, but would be a way of helping UK businesses drive economic growth.

The BCC said in June it expected growth of 0.1% in 2012 and has now cut its forecast three times this year, highlighting the UK's worsening performance. A little over a year ago it had expected growth of 2.3%.

It expects the economy to return to growth in the third quarter of 2012 amid a boost from the Olympics but fears growth over subsequent quarters will be slow as the economy continues to battle headwinds from the eurozone.

The BCC expects the unemployment rate to rise by 186,000 to 2.75 million by the final quarter of 2014, although this is better than it previously feared, reflecting stronger than expected employment data in recent months.

And the public finances are set to worsen as the Government overshoots the target set by its spending watchdog for the current year by £14 billion.

It predicts the Government will not be able to eliminate the structural deficit by 2016/17 as currently hoped and will take a further two or three years to complete the job.

The CBI painted a similarly depressing picture yesterday after it said GDP will fall 0.3% in 2012, below its May forecast of a 0.6% rise.

It now thinks the economy will expand by 1.2% in 2013, compared with its previous estimate of 2%.

But on a brighter note it said inflation, which is expected to fall back to close to its 2% target in coming months, will help ease the squeeze on consumer spending.

As a result, it hopes disposable incomes should begin to rise in 2013 for the first time since 2010, giving a modest boost to consumer spending.

CBI head of economic analysis Anna Leach said the economy is "likely to remain quite listless through the remaining months of 2012".

But she added: "On a more positive note, we expect the pressure on household incomes to continue to lift through the remainder of this year as inflation falls further, and this should put the recovery on a slightly firmer footing next year."

A Treasury spokesman said: "The Government is doing everything it can to get the economy moving - the Funding for Lending scheme will help boost lending across the whole economy, and the Government is using the UK's market credibility to support investment in major UK infrastructure projects.

"Britain is dealing with some very deep-rooted problems at home, including recovering from the biggest debt and financial crisis of our lifetimes, as well as a very serious debt crisis abroad.

"Growth in the year to date has been disappointing but, despite the difficult current conditions, employment is rising, and inflation has halved since its peak last year."

PA