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UK growth forecast downgraded

A business group has downgraded its forecast for UK growth this year in what it said was a warning sign in the struggle to achieve a sustained recovery.

The British Chambers of Commerce (BCC) expects gross domestic product (GDP) to increase by 3% for 2014, down from a previous outlook of 3.2%.

It would still be the best growth since before the recession but has been cut from the previous forecast because of weaker than expected performances from the dominant services sector as well as household consumption and exports, the BCC said.

The third quarter performance of the economy, when it grew by 0.7%, was weaker than it expected and a slowdown from 0.9% in the second quarter.

The BCC also downgraded its forecast for 2015 from 2.8% to 2.6% and for 2016 from 2.5% to 2.4%.

Director general John Longworth said the 2014 figure would still put Britain ahead of international competitors for growth this year.

But he added: "Downgrades to our growth forecast are a warning sign that we still face a number of hurdles to securing a balanced and sustainable recovery.

"A number of headwinds from the global economy are also having a real impact on British businesses.

"The eurozone is weak, with a real risk of deflation, growth in emerging markets has slowed and political uncertainty in Ukraine, the Middle East and elsewhere is affecting business and consumer confidence.

"Uncertainty in the economy generally affects consumer confidence as does the spending and debt cycle.

"Our dependence on consumer spending and mortgages means that the UK economy is particularly sensitive to interest rates. Any short-term rate rises could present a huge risk to our economy."

The BCC has pushed back its expectation for an interest rate hike to the third quarter of next year.

Chief economist David Kern said: "In the short term, the main concern for the UK is a continuation of the slowdown in recent months.

"A deceleration in growth may be unavoidable, given the weaker trends in the global economy, particularly in the eurozone.

"However, it is important to counter the impact of these downward pressures by maintaining low interest rates and pro-business policies, in order to minimise the risk of the recovery stalling."

The downgrade comes after Bank of England governor Mark Carney spoke of the spectre of European stagnation while Prime Minister David Cameron has warned of "red warning lights" flashing for the global economy.

It comes after the Organisation for Economic Co-operation and Development last month downgraded its UK growth forecast from 3.1% to 3%.

The independent Office for Budget Responsibility (OBR) last week upgraded its prediction for this year's GDP increase from 2.7% to 3%.

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