BCC UK EconomicForecast-June 2012-PDF[1]

7/28/2019 BCC UK EconomicForecast-June 2012-PDF[1]

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BCC UK Economic Forecast June 2012

David Kern, Chief Economist at the BCC

The main purpose of the BCC Economic Forecast is to articulate a BCC view oneconomic topics that are relevant to our members, and to contribute to the

wider public debate on policy issues. The Forecast also aims to complement the

messages conveyed by the BCCs Quarterly Economic Survey (QES).

Main messages

The eurozones problems, which will persist for a considerable period, will affect the UK.

But our central scenario described in this forecast assumes that a major European recession

and banking crisis will be avoided, andthe most acute threats will be contained.

Our assumption is that and the UK will be able to achieve improved growth in 2013 & 2014.

However, a disorderly euro breakdown is likely to result in much weaker UK growth.

The BCC is reducing its 2012 GDP growth forecast to 0.1%, from 0.6% predicted in March.

The downgrading reflects negative growth in Q1 2012 and worsening eurozone problems.

But we are raising slightly our 2013 forecast to 1.9%, from 1.8% in March. The eurozone will

still have a dampening effect on the UK. But, as inflation falls and the squeeze on living

standards eases, ample excess capacity will make possible a modest rebound in UK growth.

For 2014, we are forecasting a further upturn in annual average UK GDP growth, to 2.3%.

After declining by 0.3% in Q4 2011, GDP recorded a further 0.3% fall in Q1 2012; this pushed

the UK economy into technical recession. Many analysts question the ONS assessment that

GDP fell in Q1 2012. Most business surveys signalled positive Q1 growth. The increase in

the number of hours actually worked in Q1 raises doubts regarding the reported GDP fall.

The ONS Q1 estimates may be revised up in due course. But a revision is not imminent, and

we are therefore using the current ONS figures as the starting point for our new forecast.

The immediate outlook remains highly uncertain. Growth in Q2 2012 is likely to be zero, or

even slightly negative, due to the additional Bank Holiday for the Diamond Jubilee. But UK

GDP growth is set to improve from Q3 2012, averaging 0.5% per quarter until end 2013.


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In spite of the serious problems facing the UK economy, and strong political demands for

relaxing or abandoning austerity policies, we believe that the Government must persevere

with implementing its fiscal plan. The UK structural deficit is still unacceptably high, and itselimination must remain a key policy priority in the next few years.

An erosion of Britains credibility in the financial markets, and the loss of our AAA credit

rating, would be far more damaging to the economy than any small and temporary benefit to

growth that may result from abandoning the deficit cutting programme known as Plan A.

At the same time, it is critically important that, while adhering to the fiscal envelope of Plan A,

the Government should act more forcefully to reallocate priorities towards growth-enhancing

policies, and make greater use of the flexibility provided by its fiscal mandate.

The UK has earned considerable credibility in the financial markets as a result of the forceful

fiscal policies the Government pursued since June 2010. The Chancellor can now redeem

some of this credit and can afford, within Plan A, to spend more on pro-growth policies.

The precise scale of any stimulus that can be safely provided in the near term is a matter of

judgement. The chancellor will have to be very cautious, so as not to put at risk the UKs

strong market credibility. But the critical priority is to sustain growth while cutting the deficit.

As long as the Chancellor is committed to implementing his planned spending cuts, a fiscal

stimulus totalling 5-6bn would be consistent with maintaining strong UK market credibility.

If accompanied by an effective growth strategy, rebalancing the economy towards the private

sector would improve Britain's productive potential; it would help create a leaner and fitter

economy, and would put the UK on a path of sustainable and affordable recovery.

Interest Rates & Quantitative Easing

Weak growth prospects, both globally and in the UK, will make it necessary to keep official

interest at very low levels for at least another year.

We expect official UK interest rates to remain at 0.5% until the final months of next year, and

then to increase modestly to 0.75% at the end of 2013, and to 1.25% in Q2 2014. In our

March forecast we also predicted that the MPC would start raising official rates in Q4 2013.

With UK spare capacity remaining ample in the next 12-18 months, and with the eurozone

likely to face difficult challenges, we expect the MPC to maintain the Quantitative Easing (QE)

programme at its current level 325 billion at least until Q4 2013.

In recent weeks, there have been renewed demands for additional increases in QE. Such a

move cannot be ruled out. But we think it is unlikely, on balance.

The benefits of higher QE for the real economy are at best marginal, and the longer-term

risks of higher inflation cannot be shrugged off indefinitely. But, if the eurozone crisis worsens

and causes problems in the UK banking system, an increase in QE may be necessary.


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QE could be made more effective & helpful for businesses if the MPC would be prepared, as

part of the programme, to buy private sector assets, instead of focusing exclusively on gilts.

It is critically important to improve the flow of credit to businesses, particularly viable SMEs.

This means giving serious consideration to the creation of a fully-fledged business bank.

GDP and the main components of demand

In annual average terms, UK GDP growth slowed sharply from 2.1% in 2010 to 0.7% in 2011.

We are now forecasting minimal UK GDP growth of 0.1% in 2012, followed by stronger 1.9%

growth in 2013. In 2014, we are predicting a further upturn in UK GDP growth, to 2.3%.

In March 2012, we predicted GDP growth of 0.6% in 2012 & 1.8% in 2013 .

The main factors accounting for the downward revision in our UK 2012 growth forecast are:

1) The unexpected and questionable 0.3% quarterly fall in Q1 2012 GDP; and 2) the renewed

difficulties facing the eurozone this year.

Our 2013 GDP forecast is revised up because, as inflation falls and the squeeze on living

standards eases, ample excess capacity will make possible a modest rebound in UK growth.

Table 1 summarises our forecasts for UK GDP and the main components of demand.

Table 1: UK GDP & Main Demand Components, % Change Year on Year

2008 2009 2010 2011 2012 2013 2014

GDP -1.1% -4.4% 2.1% 0.7% 0.1% 1.9% 2.3%

Household Consumption -1.4% -3.5% 1.2% -1.2% 0.7% 1.7% 2.1%General Government 1.6% -0.1% 1.5% 0.1% 1.3% -0.3% 0.2%

Investment -4.8% -13.4% 3.1% -1.2% 0.5% 3.8% 4.1%

of which: Business Investment -5.6% -12.7% -2.1% 1.2% 4.3% 7.3% 7.6%

Exports 1.3% -9.5% 7.4% 4.6% 2.6% 5.3% 5.4%

Imports -1.2% -12.2% 8.6% 1.2% 2.6% 4.3% 4.3%

The ONS reported that, after declining by 0.3% in Q4 2011, GDP recorded a further 0.3%

quarterly fall in Q1 2012; this pushes the UK economy into technical recession.

Year-on-year GDP growth in Q1 2012 was -0.1%, down from 0.5% in Q4 2011.

Many analysts questioned the ONS assessment that GDP fell in Q1 2012. Most business

surveys conveyed a more positive message. Employment, and the number of hours actually

worked, both rose in Q1. The MPC also cast doubt on the ONS figures for Q1 2012.

The OBR predicted a 0.3% positive quarterly GDP increase in Q1 2012.

The ONS Q1 estimates may be revised up in due course. But a revision is not imminent, and

we are therefore using the current ONS figures as the starting point of our new forecast.

The immediate outlook remains highly uncertain. Growth in Q2 2012 is likely to be zero, or

even slightly negative, due to the additional Bank Holiday for the Diamond Jubilee. But UK

GDP growth is set to improve from Q3 2012, averaging 0.5% per quarter until end 2013.


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Household consumption will be subdued in the next few years, as the personal sector

reduces excessive debt levels. But falling inflation will ease the squeeze on UK disposable

incomes, and will make possible a modest improvement in household consumption - from afall of 1.2% in 2011, to positive growth of 0.7% in 2012, 1,7% in 2013, & 2.1% in 2014.

Net exports and business investment will be important main drivers of UK economic growth in

the next 2-3 years. Exports will grow more rapidly than imports in 2013 & 2014.

But, in view of the serious problems facing the Eurozone, the rebalancing of the UK economy

towards net exports will be slow and will face difficult challenges.

UK main sectors - manufacturing, services & construction

The marked slowdown in GDP growth in 2011, compared with 2010, largely reflected a sharpfall in construction output growth, and much reduced manufacturing expansion, which pushed

total industrial production into negative territory.

However, service sector growth strengthened marginally in 2011 compared with 2010

Construction output growth dropped from 8.2% in 2010 to 2.8% in 2011. But the moderate

full-year expansion in 2011 masks very large quarterly and monthly fluctuations.

Construction output fell very sharply in December 2011, and in January & February 2012.

Though there was a recovery in March, the ONS estimated a large fall in construction output

for Q1 2012, initially of 3% and subsequently revised to 4.8%.

This large Q1 fall in construction output was one of the main reasons for the ONS estimate

that GDP fell by 0.3% in Q1; this pushed the UK economy into technical recession.

Looking ahead, construction output is forecast to grow very slowly in the next 2 years, due to

public sector cuts and housing market weakness. In 2012, quarterly growth will be positive

from Q2 onwards, but annual average growth will be negative, because of the decline in Q1.

Our full-year construction output forecasts are: -3.7% in 2012, 1.3% in 2013, 1.2% in 2014.

Manufacturing is still a significant sector, but its relative share of total UK economic output

has fallen in recent decades, and now accounts for just over 10% of the total.

The recent recession has accentuated the relative decline in the share of UK manufacturing.

While manufacturing output expanded relatively strongly in the early stages of the recovery,

growth has weakened markedly since Q1 2011.

Quarterly manufacturing growth was zero in Q2 2011, and was in negative territory in Q3 &

Q4 2011. In Q1 2012, quarterly growth was zero, and output fell 0.8% year-on-year.

Most business surveys signalled more positive manufacturing Q1 growth than the ONS.

In annual average terms, manufacturing output rose by 3.7% in 2010 & 2.0% in 2011.

The manufacturing sector is still benefiting from a relative competitive sterling exchange rate

resulting from the large falls in sterling between 2007 and 2009.


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Recent sterling rises vs. the euro have eroded some of the advantages for UK exporters.

But manufacturing is now productive and well managed. The sector has the potential to

recover and prosper even if sterling strengthens slightly in the next few years.

Many manufacturing firms have been able to retain their skill bases during the recession.

Full-year manufacturing output forecasts are: 0.0% in 2012, 2.1% in 2013, & 2.3% in 2014.

The service sector accounts in total for just over 76% of total UK output; of this, private sector

services account for just over 54% of the total economy.

Service sector average growth was 1.6% in 2011, after 1.4% in 2010. Quarter-on-quarter

growth fell to -0.1% in Q4 2011, and rose to only 0.1% in Q1 2012, less than estimated by

most business surveys. In Q1 2012, service output was 1.0% higher than a year earlier.

Service sector average growth is forecast at 0.8% in 2012, 2.1% in 2013, and 2.7% in 2014.

Table 2 summarises our specific forecasts for manufacturing, services, and construction.

Table 2: Manufacturing, Services & Construction Output, % Change Year-on-Year

2008 2009 2010 2011 2012 2013 2014

Manufacturing Output 2.6% -9.6% 3.7% 2.0% 0.0% 2.1% 2.2%

Total Production -2.8% -9.0% 1.9% -1.2% -1.2% 1.7% 1.5%

Construction Output -2.8% -13.5% 8.2% 2.8% -3.7% 1.3% 1.2%

Services Output -0.5% -2.6% 1.4% 1.6% 0.8% 2.1% 2.7%

Unemployment and the labour market

The UK labour market strengthened in Q1 2012. Compared with Q4 2011, employment rose,

unemployment fell, and inactivity amongst those aged 16 to 64 fell.

The level of unemployment fell by 45,000 in Q1 2012, but was 170,000 higher than in Q1

2011. The jobless rate fell from 8.4% in Q4 2011 to 8.2% in Q1 2012; it was 7.7% in Q1 2011.

Recent labour market trends have been positive overall, but there are worrying features.

The quarterly increase in employment in Q1 was entirely due to more part-time workers. The

number of part-time workers increased by 118,000, to 7.99 million, the highest figure since

comparable records began in 1992; but the number of full-time workers fell by 13,000 in Q1.

The number of people who were working part-time because they could not find a full-time jobincreased by 73,000 in Q1, to 1.42 million, the highest figure since records began in 1992.

The number of self-employed people increased by 89,000 in Q1, to reach 4.16 million, the

highest figure since records began in 1992.

Total actual weekly hours worked in Q1 2012 rose by 0.9%, reflecting a 0.4% increase in

employment and a 0.5% increase in the average number of hours worked per week.

The 0.9% increase in the numbers of hours actually worked in Q1 is difficult to reconcile with

the 0.3% fall in Q1 GDP reported by the ONS.


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Our new forecast envisages that total UK unemployment would increase from 2.625 million

(8.2% of the workforce) in Q1 2012, to 2.9 million (9.0% of the workforce) in Q3 2013, a net

increase of 275,000 in the jobless total. Our new forecast for the 2013 jobless peak is the same as in March, when we predicted that

unemployment would rise in to a peak of 2.9 million in Q1 2013.

But the net increase in unemployment we are now predicting is 45,000 greater than in March,

when we predicted a net increase of some 230,000 between Q4 2011 and Q1 2013.

We are also forecasting now that the peak in UK unemployment will be reached in Q3 2013

rather than in Q1 2013, as predicted in March.

The larger net increase in unemployment we are now forecasting is due to two main reasons:

1) most of the planned public spending cuts still have to be implemented, and the resulting

impact on jobs is still due to be felt; and 2) the falls in productivity seen since 2008 will be

partially reversed in the next few years, and this will add to the jobless total at a time when

demand will remain weak both domestically and in our main export markets.

Our new unemployment forecast compares with a jobless peak of just over 3 million (10.7%

of the workforce) in the recession of the early 1990s, when the workforce was much smaller.

The UK labour market is now much more flexible and resilient than in previous recessions.

This greater flexibility, particularly the willingness of workers to limit wage increases and even

accept wage reductions, has ensured that falls in employment and rises in unemployment in

the recent downturn have been much smaller than in the recession of the early 1990s.

These are very positive developments, but they have also created new problems.

The number of weekly hours actually worked in Q1 2012, at 925.8 million, was 2.5%, lower

than the pre-recession peak of 949.3 million recorded Q1 2008.

But the level of UK GDP in Q1 2012 was still 4.4% below its Q1 2008 peak.

This means that, as the number of hours worked fell by considerably less than the level of

output, UK productivity per hour worked was 2.0% lower in Q1 2012 than in Q1 2008.

A temporary decline in productivity is acceptable after a recession, because it alleviates

human misery and helps businesses to preserve skills.

However, as the economy returns to growth, it is critically important that we regain theseproductivity losses. If productivity fails to recover, living standards will suffer in the long-term.

Unemployment in the 16-17 & 18-24 age groups

The number of unemployed people aged 16 to 24 fell by 17,000 between Q4 2011 and Q1

2012, and totaled 1.02 million. But, in line with international definitions, the unemployment

figure includes 314,000 people in full-time education who were looking for work in Q1.


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The unemployment rate for people aged 16 to 24 fell by 0.3 percentage points between Q4

2011 and Q1 2012, to reach 21.9% of the economically active population for that age group.

The number of unemployed people aged 16-17 fell by 5,000 between Q4 2011 and Q1 2012,to reach a level of 206,000. The Q4 unemployment rate in this age group was 37.6%

The number of unemployed people aged 18 to 24 fell by 12,000 between Q4 2011 and Q1

2012, to reach a level of 814,000. The Q1 unemployment rate in this age group was 19.8%.

With total UK unemployment forecast to increase to 2.9 million in Q3 2013, or 9.0% of the

workforce, our specific forecast for the 16-17 & 18-24 age groups are as follows:

Unemployment in the 16-17 age group is forecast to total around 223,000 (a jobless rate

of 41.0%) in Q3 2013.

Unemployment in the 18-24 age group is forecast to total around 850,000 (a jobless rate

of 23.0%) in Q3 2013.

Inflation and labour costs

CPI annual inflation has declined markedly from its September 2011 peak of 5.2%, falling to

3.6% in January 2012, after last years VAT increase came out of the 12-month comparison.

Since January, CPI annual inflation fluctuated but recorded a net fall to 3.0% in April 2012.

RPI annual inflation was 3.5% in April 2012, down from a 5.6% peak in September 2011.

We accept the Bank of Englands assessment that inflation is likely to decline further in 2012,

as upward pressures from external costs such as energy & imports diminish, and downward

pressures on domestically generated inflation from unemployment & spare capacity continue.

However, while we agree with the Bank that inflation is likely to fall further in the next 12-18

months, we believe the decline will be less sharp than indicated in the recent Inflation Report.

It is doubtful that we will see a prolonged period of below target inflation in 2013.

In average terms, we are now predicting annual CPI inflation at 2.7% in 2012, 1.9% in 2013,

and 2.2% in 2014. Our CPI inflation forecasts 2012 & 2013 are the same as in March.

For annual average RPI inflation we are now predicting 3.2% in 2012, 2.3% in 2013, and

2.6% in 2014. Our RPI inflation forecasts 2012 & 2013 are also the same as in March.

Table 3 summarises our specific forecasts for various measures of UK inflation.

Table 3: UK Annual Inflation, % Change Year on Year

2008 2009 2010 2011 2012 2013 2014

CPI 3.6% 2.2% 3.3% 4.5% 2.7% 1.9% 2.2%

RPI-All Items 4.0% -0.5% 4.6% 5.2% 3.2% 2.3% 2.6%

In the last 6 months, annual growth of average earnings has fallen sharply for total pay; it has

also edged down, though less markedly, for regular pay excluding bonuses.

Overall, earnings growth is modest and remains much lower than both CPI and RPI inflation.


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Annual growth in total UK average earnings (including relatively volatile bonuses) was 0.6%

in January-March 2012, down from 1.1% in the three months to February.

The annual earnings growth for regular pay (excluding bonuses) for the three months toMarch 2012 was 1.6%, the same as in the three months to February.

In the three months to March, earnings growth in the public sector was higher than in the

private sector for total pay, but lower for regular pay excluding bonuses.

With wage pressures still subdued, annual growth in pay (both including and excluding

bonuses) will remain for some time well below inflation, on both the CPI and RPI measures.

Our forecast assumes that earnings growth for regular pay (excluding bonuses) will edge up

very slightly over the next 2 years, to reach about 2.7% in Q2 2013 & 3.2% in Q2 2014.

UK public finances and the balance of payments

Public Sector Net Borrowing (PSNB) excluding the impact of financial interventions, fell from

a peak of 156.8bn (11.1% of GDP) in the financial year 2009/10 to 124.4bn (8.2% of GDP)

in the financial year 2011/12, 1.6bn lower than the OBRs Budget forecast.

In April 2012, the PSNB recorded a surplus of 16.5bn, compared with a deficit of 9.1bn in

April 2011. The large surplus is mainly due to a one-off 28bn transfer of the Royal Mails

historical pension deficit, plus a share of its pension funds assets into the public sector.

But if one allows for the effect of various special factors, the underlying PSNB in April would

have been around 4.7bn higher than a year ago, an unwelcome deterioration.

The transfer of the Royal Mails pension fund to the public sector is also the main factor that

reduces the OBRs PSNB forecast for 2012/13, to 92bn. However, while the short-term

impact of the transfer is very favourable, the long-term impact is likely to be negative, as the

future payments to pensioners will exceeds the 28 billion value of the transferred assets.

Table 4 compares the BCCs PSNB forecasts, with the OBR forecasts issued in March 2012.

Table 4: Public Sector Net Borrowing (PSNB) BCC vs. OBR Forecasts

2008 2009 2010 2011 2012 2013 2014

PSNB-FinYears-%GDP-BCC-May 12 6.9% 11.1% 9.3% 8.2% 6.3% 6.4% 4.8%

PSNB-FinYears-bn-BCC-May 12 97.5 156.8 136.8 124.4 98.0 104.0 82.0

PSNB-FinYears-%GDP-OBR-March 12 6.9% 11.1% 9.3% 8.3% 5.8% 5.9% 4.3%

PSNB-FinYears-bn-OBR-March 12 97.5 156.8 136.8 126.0 92.0 98.0 75.0*Positive PSNB figure indicates deficit; negative PSNB figure indicates surplus

The OBRs recent forecasts assume, in broad terms, that the Governments will meet its

fiscal mandate. This requires it to balance the cyclically adjusted current budget (CACB)

at the end of a rolling, five-year period, now 2016/17. The supplementary fiscal target

requirespublic sector net debtto fall as a share of GDP between 2014/15 and 2015/16.


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Our new forecast indicates that the Government will be able to cut its deficit steadily over the

next few years, broadly according to plan. But our growth forecasts are lower than those of

the OBR, and meeting the fiscal mandate may take 1 year longer than the OBR predicts. Assuming no additional fiscal stimulus, our PSNB forecasts are 6bn higher than those of the

OBR in 2012/13 & 2013/14, and 7bn higher in 2014/15.

The UK structural deficit is still unacceptably high, and its elimination must remain a key

policy priority. But the forceful measures adopted by the Chancellor since June 2010, have

earned him considerable credibility in the financial markets.

The recent IMF report on the UK economy has reinforced the case for combining adherence

to the deficit cutting programme, known as Plan A, with new growth-enhancing policies.

As well as using the automatic stabilisers when the economy is weaker than predicted, the

UK can reallocate priorities towards growth-enhancing policies, and can also utilise its strong

status as a haven in the financial market without endangering its AAA rating.

As the fiscal mandate relates to the cyclically adjusted, or structural, current balance,

and not to the total deficit, the Chancellor can consider increased spending on infrastructure

investment; such spending would not affect the current budget deficit.

There is also scope for spending increases that would not affect the structural deficit, e.g. a

time-limited cut in NICs or in income tax, or a temporary increase in capital allowances. In

general measures that support job creation and enterprise would be preferable to a VAT cut.

Any increase in spending will obviously increase total debt. But stabilising net debt is only a

supplementary fiscal target. Delaying its achievement in order boost growth would be justified

if persistent stagnation threatens to damage to the economys long-term productive potential.

The precise scale of any stimulus that can be safely provided is a matter of judgement. The

chancellor will have to be very cautious, so as not to put at risk the UKs strong market

credibility. But the critical priority is to sustain growth while cutting the deficit.

As long as the Chancellor is committed to his planned spending cuts, a fiscal stimulus

totalling 5-6bn would be consistent with maintaining strong UK market credibility.

The UK current account improved markedly last year, with the deficit narrowing from 3.3% of

GDP in 2010, to 1.9% in 2011. The trade deficit fell, and investment income rose significantly.

While the quarterly figures will remain volatile, we expect the UK current account deficit to

remain relatively stable in annual terms, moving in a narrow range of 1.7-2.3% of GDP.

Table 5 shows our forecasts for the PSNB and the balance of payments on current account.

Table 5: UK Balance of Payments on Current Account

2008 2009 2010 2011 2012 2013 2014

BofP-CurrentAccount-%GDP-BCC -1.4% -1.5% -3.3% -1.9% -2.1% -2.1% -2.0%

BofP-CurrentAccount-bn-BCC -19.8 -20.3 -48.6 -29.0 -33.0 -34.0 -34.0


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Policy issues

The eurozones problems will persist for a considerable period, but our working assumption isthat the most acute threats will be contained and a major crisis will be averted.

Our central view is that, in spite of the eurozone situation, the UK will be able to achieve a

gradual improvement in the pace of growth in 2013 and 2014. But risks have worsened, and

a disorderly euro breakdown is likely to result in much weaker UK growth.

Restoring and sustaining UK growth, while persevering with the implementation of a tough

deficit-cutting programme, is a major challenge that will require policy changes.

If accompanied by an effective growth strategy, rebalancing the economy towards the private

sector would improve Britain's productive potential; it would help create a leaner and fitter

economy and would put the UK on a path of sustainable and affordable recovery.

But, in the short term, the UK economy will continue facing a difficult outlook, with weak

growth and rising unemployment. In Q1 2012, UK GDP was 4.4% below its Q1 2008 peak,

and consumer spending was 5.0% below its pre-recession peak. Though growth is likely to

improve gradually, living standards will be under pressure in spite of falling inflation.

Debt levels are still too high, both globally & in the UK. The process of reducing debt levels

will be painful & will inevitably result in a prolonged period of relatively low economic growth.

Though UK growth is likely to stay positive, and strengthen gradually from mid-2012 onwards,

our forecast indicates that both GDP and consumer spending will only return to their pre-

recession level in the second half of 2014 or early in 2015.

It is critically important that, while adhering to the fiscal envelope of Plan A, the Government

should act more forcefully to reallocate priorities towards growth-enhancing policies, and

make greater use of the flexibility provided by its fiscal mandate.

The UK has earned considerable credibility in the financial markets as a result of the forceful

fiscal policies the Government pursued since June 2010. The Chancellor can now redeem

some of this credit and can afford, within Plan A, to spend more on pro-growth policies.

This is necessary at present, because persistent stagnation threatens to damage to the

economys long-term productive potential.

As long as the Chancellor is committed to his planned spending cuts, a fiscal stimulus

totalling 5-6bn would be consistent with maintaining strong UK market credibility.

Contact details: David Kern, Chief Economist at the BCC,

E-mail: [email protected]

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BCC UK EconomicForecast-June 2012-PDF[1]