LONDON (MNI) – The British Chambers of Commerce have cut their
forecast for UK economic in 2011 to 1.9% from 2.2% but raised its
forecast for 2012 to 2.1% from 1.8%.

The BCC’s forecast for growth this year remains unchanged at +1.0%.

“The downward revision to the 2011 growth forecast reflects the
BCC’s assessment that the negative impact of the Government’s austerity
plan will initially be more serious than previously envisaged.”

The BCC also cited lower house prices and other signs of financial
fragility in the UK household sector as well as the worsening Eurozone
debt crisis.

The latter would “also dampen UK growth prospects next year more
than formerly expected”.

The BCC warned that GDP growth will be modest and below the
historical average over the next few years. Over the next four or five
years, the BCC forecasts, GDP growth is likely to average just under 2%
per annum, compared with the 2.7% average growth recorded in the period
2003-07.

The BCC also said unemployment is likely to rise further in
the next 6-9 months. The new forecast shows total unemployment will
rise 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. In
December, BCC predicted a slightly higher jobless peak of 2.7 million.

BCC Chief Economist, David Kern, said the recovery remained fragile
and the threat of a double-dip recession is greater than higher
inflation:

“The UK’s economic prospects remain uncertain, our recovery is
fragile and risks of a relapse are high. Threats of a double-dip
recession are greater in the near future than the dangers of higher
inflation.

“Following a slowdown in Q1 2010, due to weather-related disruption
and the reversal of the VAT cut, we expect a relatively strong bounce
back in UK GDP, driven mainly by stocks and the emergency stimulus
packages. However, these factors are temporary and longer-term growth
prospects remain weak. The need to significantly cut the UK’s huge
budget deficit, strengthen the enfeebled banks, and reduce personal debt
will inevitably limit growth in the next few years”.

Kern said it would be wrong for the Bank of England to overeact to
high inflation outturns and said he expects Bank Rate to stay at 0.5%
until at least Q3. He expects QE to be lifted by a further stg50bn to
stg200bn by the middle of 2011.

–London newsroom 4420 7634 1624; email: dthomas@marketnews.com

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