By Maximilian Clarke
Despite again cutting the UK’s GDP growth forecast, predicting stagnation until mid-2012 followed by a moderate return to growth thereafter, the British Chambers of Commerce have again urged government to adhere to its deficit reduction programme.
Though the Chambers recognise the destructive effects austerity is having on domestic demand, the organisation’s Director General has previously pointed out the boost to the UK’s economy that retaining Briatin’s AAA credit rating, that would not have been possible without severe cuts to public sector finances:
“…we believe the fiscal strategy remains on course, and it is important for the government to persevere with the task of cutting the deficit and stabilising Britain’s public finances,“ commented John Longworth in Ocbober.
And commenting today following publication of its 4th quarterly economic outlook for 2011, the Director General again commented: “Business is clear that the government must stick to its deficit reduction plans. Yet there is room for the Chancellor to change spending priorities, and focus more of our existing budgets on improving infrastructure, helping businesses to invest, and support for exporters.”
However, this view has been challenged, particularly by trades unions, who advocate a more Keynesian approach to fostering growth through high government spending. Doing so, they assert, would restore confidence and encourage spending, helping bring about a hastier recovery than the economically damaging cuts could.
Currently, the major challenges facing the UK economy stem from eurozone uncertainty and a global loss of confidence in the markets. Investing in jobs would simply serve to threaten the UK’s credit rating which would send the cost of borrowing skyrocketing, with devastating consequences for the UK’s credit dependent economy.
“The immediate outlook is challenging and, though we believe a recession will be avoided, the risks cannot be shrugged off,” added David Kern, the Chambers’ chief economist. “Due to the combined impact of the eurozone crisis and the UK’s fiscal austerity plan, we expect growth to be minimal until mid-2012, and then improve gradually. Though UK growth will stay positive, and strengthen in the medium term, our forecast indicates that GDP will only return to its pre-recession level in 2014, while consumer spending will only rise back to its pre-recession position in 2015.”
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