The predicted UK economic growth for this year has been reduced by the British Chambers of Commerce for the third time. In January this year, growth was predicted as 1.9% in 2011, this was reduced at the end of the second quarter to 1.3% and now the economy is expected to have grown by only 1.1% by the end of the year.
The reduction in expected growth has been claimed by the BCC to be the result of a slower pace of rebalancing the economy than is needed. The director general of the British Chambers of Commerce, David Frost, has stated that if the UK economy is to grow quicker, the government need to focus more on helping businesses grow in addition to implementing measures such as spending cuts. He believes this could be done by lessening the strictness of regulations surrounding companies. He claims that it is not enough just to reduce the debt and, in order to stimulate quicker economic recovery, focus on reducing outgoings needs to be balanced with a concentration on growth. Without this balance, he fears that not only will the recovery be weak, it will also be short term.
In addition, the BCC believes the plans being made could benefit from being more simple and straightforward. Mr Frost deems the current plan to be far too overcomplicated for what could be a relatively quick and efficient process.
On top of the cut in the economic growth forecast for 2011, the BCC has also reduced its expectations for growth in 2012 from 2.2% to 2.1%.
The BCC has argued that the best way to boost the economy in 2012 is for the Bank of England to contemplate another set of quantitative easing. In contrast, it has been argued that increasing interest rates is the best course of action to take as inflation is reducing people’s spending power.
The BCC is not the first to downgrade its estimation of growth. In August this year, the Bank of England also reduced its prediction by 0.35%. The Bank blamed the financial situation of the eurozone which it believes is very likely to have a negative effect on the UK economy this year. Examples of such situations include the plans held by Greece to exchange its government bonds to ones which pay less interest but over a longer period of time. If they proceed with these plans, the earnings of banks all over Europe, including the UK, will decrease. To add to this, there are concerns that this will lead to other countries being forced to take the same action.
Figures released by the Office of National Statistics have shown that UK economic growth reduced by 0.3% in the second quarter compared with the first. It has been claimed that this was due to individual events such as the extra bank holiday for the Royal wedding. The decreased growth is also said to be the result of increasing inflation, redundancies and fewer pay rises which have limited consumer spending.
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