The U.K. economy is set to continue moderate growth, mostly driven by strong expansion in the service sector and consumer spending, the British Chambers of Commerce said in a report on Wednesday, as it trimmed the growth forecast, citing weak trade and manufacturing activity.
Gross domestic product is forecast to grow 2.4 percent this year instead of 2.6 percent, the business lobby said in its latest Economic Forecast. The projection for next year was lowered to 2.5 percent from 2.7 percent. For 2017, growth is projected to be 2.5 percent compared to previous forecast of 2.7 percent.
The weaker-than-expected trade figures and a worse than predicted manufacturing performance were the major reasons for downgrade, BCC said.
Lower-than-predicted actual GDP growth in the third quarter of 2015 and downward revisions of earlier estimates by the statistical office also contributed to the downgrade.
Consequently, the quarterly growth is forecast to average just over 0.6 percent per quarter from the final three months of this year.
The service sector will grow by 2.7 percent in 2015, while manufacturing is expected to shrink 0.2 percent, the business lobby said. In 2016, growth is expected to be 2.9 percent in services and 0.7 percent in manufacturing.
On the next Bank of England move, BCC said it will raise rates first in the third quarter of 2016. Earlier, the BCC expected first action in the second quarter.
David Kern, chief economist at the BCC, said, “While we expect the first increase in UK interest rates in third quarter of 2016, we believe that rising international uncertainty provides strong arguments for the MPC to delay this.”
The unemployment rate is projected to fall from 5.3 percent in the third quarter of 2015, to 5.2 percent in second quarter of 2016 and then to 5.1 percent in second quarter of 2017.
Further, the BCC expects U.K. budget to move into surplus in 2019/20, in line with the Office for Budget Responsibility’s November 2015 forecast.
The material has been provided by InstaForex Company – www.instaforex.com