SCOTTISH CHAMBERS "OPTIMISM IN QUARTERLY BUSINESS SURVEY - GOVERNMENT SUPPORT NEEDED".
[ 30-08-2010 ]
Scottish Chambers of Commerce today (Monday) commented on the lastest Chambers Economic Forecast today which shows an uplift in expectations for UK GDP growth to 1.7% for this year, and to 2.2% for 2011.
The rate of growth is expected to remain slow under the financial pressures from the Westminster Coalition Government's austerity plan, and be amplified by similar responses from Scotland's Government in reaction to tightening budgets.
Scottish Chambers of Commerce believes there is an essential need to cut the overall public debt, but that this must be couple with effective strategies to stimulate growth and enable the private sector to drive forwrd the economy.
The main features of the Forecast include:
· SCC is now forecasting GDP growth of 1.7% in 2010, 2.2% in 2011 and 1.8% in 2012. In June, we predicted growth of 1.3% in 2010 and 2.0% in 2011. The Coalition’s austerity programme and the worsening global background are likely to dampen Britain’s medium-term prospects.
· Unemployment will increase over the next 18 months. This forecast envisages unemployment rising from 2.46 million to a peak of 2.65 million (8.3% of the workforce) in the first half of 2012.
· With tax receipts showing surprising buoyancy in recent months, we expect the deficit to fall faster than planned. We predict large declines in public sector net borrowing (PSNB), to £144bn (9.7% of GDP) in 2010-11, £110bn in 2011-12, and £83bn (5.1% of GDP) in 2012-2013.
· CPI inflation will remain above the 2% target until the end of 2011, but it is likely to fall below 3% over the next year. In annual average terms we forecast CPI inflation at 3.2% in 2010, 2.7% in 2011 and 1.7% in 2012. RPI inflation is forecast to average 4.7% in 2010, 4.1% in 2011 and 2.8% in 2012.
· The Monetary Policy Committee is expected to hold interest rates at 0.5% until the second quarter of 2011. By the end of 2011, we expect the Bank Rate to hit 1.75%.
SCC's Chief Executive Liz Cameron said:
"Scottish businesses are in doubt that that getting the economy back on track requires hard decisions from the private sector as well as the public purse.
“It is clear that rebuilding confidence in the economy, and especially international confidence in international markets in Britain's sure handedness in delivering the recovery, cuts must be made to reduce the public deficit. That means we also need a favourable climate to enable businesses to achieve growth despite present financial pressure. We appreciate this is a fine line to tread.
“Reducing the burden of red tape, having a moratorium on more future legislation which is restricting businesses ability to hire and keep staff, measures which encourage inward investment, such as smoothing the planning process and reducing developer contributions until building work is back in the swing, ensuring capital is available for infrastructure investment. These are all measures which reflect the ambition of our business members to get the economy back on track.
"Unless we rebalance the economy to encourage wealth-creating businesses, and enable the private sector to invest, export and create new jobs, unemployment will stay high or worsen and tax take will fall. These are essential elements to enabling the private sector to do its part in rebuilding the economy."
BCC Chief Economist, David Kern, added:
“UK GDP was very strong in the second quarter of 2010 and the pace of growth will remain satisfactory in the second half of this year. Activity will be supported in the short-term by the cumulative impact of the huge injections of stimulus during the recession, the earlier sharp falls in sterling, and the rebuilding of stocks.
“However, we expect a sharp slowdown in the pace of growth to start in the first quarter of 2011, as VAT increases to 20% and tough spending cuts are implemented. The need to significantly cut the deficit, strengthen the banking sector, and reduce personal debt will inevitably limit growth until the middle of the decade. Over the next four to five years, GDP growth is likely to average just under 2% per annum, considerably less than the 3% average growth recorded in period between 1993 and 2007.
“If successful, the forceful deficit-cutting strategy announced in the Emergency Budget would put the UK on a path of sustainable and affordable recovery, and could help create a leaner and fitter economy. But, the scale of fiscal retrenchment, and the decision to cut the deficit at an accelerated pace, will inevitably increase dangers of a double-dip recession. The new policy faces obstacles, and will only succeed if it is accompanied by a coherent growth strategy.
“The Bank of England cannot ignore the risk that inflationary expectations may worsen, and its own credibility will be questioned if inflation stays for too long above the 2% target. However, threats of a setback to growth remain more serious than risks of a surge in inflation. Given the balance of risks facing the economy, we urge the MPC to keep interest rates at 0.5% until the second quarter of 2011 at the earliest, and to consider further increases in the Quantitative Easing programme if the economy weakens.
“Recent improvements in the UK labour market mask worrying developments, which pose serious threats to Britain’s productive potential. Unless the labour market remains flexible during the recovery, and private sector employers are encouraged to expand, there is a risk that falling productivity would damage Britain’s medium-term growth prospects. Inactivity must decline, full-time employment needs to grow, and private sector employment must increase.”
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