Brexit stockpiling “will hit economic growth”, says British Chambers of Commerce report

June 17, 2019 @ 10:39 by Steven Hugill

The UK is braced for mixed economic growth in the coming years as weaker investment compounds a reduction in goods stockpiling, a business organisation has warned.

The British Chambers of Commerce (BCC) has upgraded its growth expectations for 2019 from 1.2 per cent to 1.3 per cent.

However, its forecast for 2020 now stands at one per cent, from 1.3 per cent, with 2021’s prediction down from 1.4 per cent to 1.2 per cent.

According to its findings, the BCC says 2019’s slightly upgraded forecast is driven by exceptionally rapid stock-building early in the year.

However, the immediate boost to gross domestic product is forecast to come at the cost of more subdued growth in 2020 and 2021, as the unwinding of historically-high inventory levels, coupled with weaker business investment, weigh on economic activity.

Business investment is also tipped to contract at a faster rate in 2019 and recover more slowly in 2020.

The BCC added the continued Brexit impasse, including the growing possibility of a no-deal exit, together with the high upfront cost of doing business in the UK and the running down of excess stock, is expected to suffocate investment activity over the near term.

Trade is also projected to make a negative contribution over the forecast period as exchange rate volatility, Brexit uncertainty and a subdued global economy, weaken trading conditions for UK exporters.

In contrast, consumer spending is expected to remain resilient with earnings growth forecast to continue to exceed price growth over the forecast period and unemployment forecasted to remain low by historic standards.

Suren Thiru, BCC head of economics, said: “The revisions to our forecast suggest the UK economy is likely to remain on a disappointingly subdued growth path for some time to come.

“It is increasingly likely the temporary boost from historically high stockpiling in quarter one, which has marginally improved the growth outlook for this year, will be surpassed over the medium-term by the negative impact from the running down of these inventories.

“The downward pressure on business activity and investment intentions from the unwinding of stocks is likely to be exacerbated somewhat by increasing cost pressures and Brexit uncertainty, slowing overall economic growth across the forecast period.

“The deteriorating outlook for business investment is a key concern as it limits the UK’s productivity potential and long-term growth prospects.

“A messy and disorderly exit from the EU remains the main downside risk to the UK’s economic outlook as the disruption caused would increase the likelihood of the UK’s weak growth trajectory translating into a more pronounced deterioration in economic conditions.”

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