UK economy growth forecast for 2011 cut by BCC

The BCC says a rate rise now would be premature

The UK economy will grow by less than expected in 2011 but growth in 2012 will be better than predicted, the British Chambers of Commerce forecasts.

The group downgraded its forecast for UK GDP growth in 2011 to 1.4% from a December forecast of 1.9%.

The BCC said the downward revision was due to an unexpected fall in 2010's fourth quarter GDP.

Meanwhile, retail sales fell 0.4% in February against a year ago, according to the British Retail Consortium.

February's fall was the weakest sales performance since last April when like-for-like sales fell by 2.3% due to the difference in timing of the Easter holiday.

Interest rates

In its forecast, the BCC increased its estimate for unemployment for early 2012 to 2.65 million, up from 2.6 million.

However, the business group raised its prediction for growth in 2012 to 2.3% from 2.1% in December.

At the weekend, David Cameron gave a speech at the Conservative Party spring conference in Cardiff highlighting the importance of the private sector to the UK's economy.

He pledged to stand behind entrepreneurs and stand against what he called the "enemies of enterprise".

BCC director general David Frost said: "British businesses will welcome the government's desire to boost enterprise and reduce red tape but these words must be backed by action."

"While we support efforts to reduce the UK's deficit, these measures alone will not deliver a sustainable recovery," he added.

The BCC said it believed that the Bank of England would raise interest rates in May from the current historical low of 0.5%.

But the group warned that such a move could be premature at this stage of the economic cycle.

'Difficult task'

Separately, financial services firm PricewaterhouseCoopers (PwC) issued a report suggesting that the monetary policy committee (MPC) of the Bank of England should not raise interest rates before the economic recovery is secure, despite concerns over inflation.

"The MPC faces a difficult task in balancing upside risks to inflation against downside risks to growth," said John Hawksworth, PwC's chief economist.

"Our own judgement, however, is that the MPC should not be increasing rates until it is clear that the recovery is secure," he added.

"We do not believe that it needs to increase interest rates immediately to meet its target of a 2% CPI inflation rate in two years time."

Back to reality

BRC director general Stephen Robertson said that the consortium's latest retail figures represented a sharp change in consumers' spending habits.

"February's figures are a return to a more realistic picture of how things are for customers and retailers. Customers are cautious and are cutting back in a big way on non-essential spending," he said.

Last month's fall followed a strong January, when retail sales rose 2.3%.

According to the BRC figures, sales of clothing, furniture and home accessories fell in February, on a like-for-like basis, compared to a year ago.

Food and drink and footwear were among the areas that saw growth.