The UK’s economy will grow by less than previously expected next year, as a result of the eurozone debt crisis, the government’s austerity cuts and the slump in the housing market, according to an industry report.
The British Chambers of Commerce (BCC) downgraded its forecast for the UK’s GDP growth in 2011 to 1.9% from the 2.2% in its September prediction.
It expects a sharp downturn in the pace of UK growth at the beginning of 2011 in reaction to the rise in VAT from 17.5% to 20%, and the government’s cuts.
Year-on-year growth will slow from 3% in the final quarter of 2010 to 1.4% in the second half of 2011, it predicts.
Last month the government’s Office for Budget Responsibility (OBR) downgraded its own predictions for 2011 to 2.1% from 2.3% but the BCC said the latest predictions were still too optimistic.
The BCC believes the UK’s economy is sufficiently robust to avoid slipping back into recession.
It upgraded its GDP growth forecasts for 2012 from 1.8% to 2.1%, although its figure is still significantly less than the OBR’s 2.6%.
The UK’s longer-term economic prospects had improved in recent months because of the growth in the private sector, it said.
The BCC also reduced its predictions for the number of people who will be out of work by the second half of 2012 by 50,000 to 2.6m.
However, it said there may be some sharper increases in unemployment in the immediate period as a result of the budget cuts.
BCC director general David Frost called on the government to make helping businesses its priority.
“British business is willing and able to drive the recovery, but it can only do so if the government will back its words with deeds,” he said.
“The government must avoid at all costs new business taxes and measures that damage initiative, enterprise and innovation.”