British Chambers of Commerce issues warning over reliance on consumer spending
- Credit: Archant
Britain’s economy is too reliant on consumer spending fuelled by borrowing, a business group warned today as it downgraded its growth forecasts.
British Chambers of Commerce (BCC) said there needed to be a “fundamental shift” in the economy to balance growth away from the dominant services sector.
It cut is forecasts for Gross Domestic Product (GDP) growth from 2.6% to 2.4% in 2015, and from 2.7% to 2.5% in both 2016 and 2017.
BCC blamed a weaker-than-expected trade performance and recent disappointing pull-back in activity in the manufacturing sector.
Official figures on Tuesday this week revealed that manufacturing output dropped by 0.4% month-on-month in October, worse than forecast and a sharp reversal of the 0.9% rise in September.
The Office for National Statistics (ONS) said activity in the sector was also down on an annual basis, by 0.1%.
The BCC is forecasting the manufacturing sector to contract by 0.2% in 2015 as “falling global prospects” hit the sector. It had earlier predicted the sector to grow this year.
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The group is pencilling in a rise in interest rates from 0.5% to 0.75% in the third quarter of 2016, although it stressed that uncertainty over the global economy could see the Bank of England delay the move.
John Longworth, director general of the BCC, said that Britain needed to invest to help manufacturing and exports, and so to narrow the trade gap.
He said: “We cannot rely so heavily on consumer spending to fuel our economy, especially when driven by increased borrowing.
“We have been down this path before, and know that it leaves individuals and businesses exposed when interest rates do eventually rise.
“The UK still needs to see a fundamental shift in its economic model if we are to remain relevant and prosperous in a changing world economy,” he added.