The UK must invest and export more to ensure that its ‘stellar’ growth this year is not a short-term effort, or ‘a flash in the pan’, a leading business group has warned.
The British Chambers of Commerce (BCC) is now predicting that gross domestic product (GDP) will increase by 3.2 per cent in 2014. However, it expects growth to slow to 2.8 per cent next year and 2.5 per cent in 2016, by which time it believes interest rates will have risen from the current level of 0.5 per cent to 2.25 per cent.
A spokesman for the BCC described the likely slowdown as a ‘warning sign’ for an economy that is too reliant on consumer spending to drive growth, saying that the UK has become one of the fastest growing developed economies, which is leading rather than following other major economies when it comes to short-term growth.
However, he added that a strong international trade performance is key to longer-term success, as the BCC expects exports to rise by only 0.8 per cent this year, less than half the 1.9 per cent rise previously predicted. The business group also believes that the Government faces a battle to hit its target of doubling exports to £1trn by 2020.
The BCC’s report predicts that, as interest rates start to rise in 2015, cash-strapped households with mortgages will face increased financial pressures, and much weaker household consumption will act as a drag on growth.
Therefore, it warns, in order to maintain the country’s economic growth other sources of growth should be explored and it believes that greater efforts to boost exports and investment, while avoiding premature or sudden interest rate increases, will ensure that the recovery is sustainable.
