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Chambers warns of debt pressure on consumers

BRITISH Chambers of Commerce has raised its UK growth projections for this year and 2014, but trimmed its forecast for expansion in 2015 because of an anticipated impact of high personal debt levels on consumer spending.

Publishing its latest economic forecasts today, British Chambers cites a need for an improvement in business investment and exports, highlighting the extent to which consumer spending and a stronger performance by the housing market have been driving the recovery so far.

British Chambers has raised its forecast of UK growth in 2013 as a whole from 1.3% to 1.4%. It has increased its projection of expansion in 2014 from 2.2% to 2.7%. However, it has cut its forecast of growth in 2015 from 2.5% to 2.4%.

Detailing its rationale, British Chambers says: "The upward revisions for 2013 and 2014 are mainly due to the stronger GDP (gross domestic product) growth (of 0.8%) in Q3 2013, the robust growth across all main sectors of the economy, a marked increase in household consumption, which accounts for two-thirds of UK GDP, and in part due to the strong housing market."

However, it adds: "The strong growth in household consumption will moderate slowly, in reaction to high personal debt levels, and this will work to slow GDP growth in 2015."

British Chambers forecasts household consumption will grow by 2.2% in 2013 as a whole, by 3.1% in 2014, and by 2.5% in 2015.

It notes that, on the basis of its projections, the UK would finally regain the peak level of output it achieved in the first quarter of 2008, ahead of the onset of the Great Recession, in the second half of next year.

Bank of England Governor Mark Carney noted in August that the UK had suffered its weakest recovery on record.

David Kern, chief economist at British Chambers, said: "We expect GDP growth to remain strong in the short term, as the housing market continues to boost household consumption.

"But, while it was necessary to rely on the consumer and on housing in the early part of the recovery, it must now become more balanced, particularly towards exports, as household consumption will slow."

He added: "While we forecast a degree of rebalancing, net exports are not making enough progress, and risks still emanate from the eurozone where the present calm could be deceptive."

Mr Kern declared that the UK Government had a "big task on its hands" in terms of the public finances, citing a belief that the problems facing the financial sector, and "falls in oil and gas reserves" had created a long-term shortfall in the economy's ability to generate tax receipts.

Mulling the outlook, Mr Kern declared: "We believe that, in 2014, UK GDP will at long last move above its 2008, pre-recession level. But long-term trends show we can do much better."

John Longworth, director-general of British Chambers, highlighted continuing difficulties being experienced by young, growing firms and by many other small and medium-sized enterprises in obtaining finance, contrasting this situation with government support to help people buy homes.

Highlighting the challenges ahead, Mr Longworth said: "We must acknowledge that longer-term challenges are still looming. As household consumption slows in the medium term, we have to find ways of boosting business investment and exports as rebalancing our economy is critical to our long-term economic future.

"The confidence displayed by UK firms must be nurtured through more government support. Young, growing firms, and many SMEs continue to struggle with a lack of access to available credit, while consumers are getting the support they need to buy homes."

British Chambers is now forecasting UK unemployment on the International Labour Organisation measure will fall to the Bank of England's key 7% "threshold" by the third quarter of 2015. This is one quarter earlier than British Chambers predicted in August.

The Bank's Monetary Policy Committee said in August it did not intend to raise base rates from their record low of 0.5%, at which they have stood since March 2009, at least until ILO unemployment had fallen to a threshold of 7%, subject to caveats on inflation and financial stability. British Chambers forecasts UK unemployment will fall from 2.466 million or 7.6% of the workforce in the third quarter, to 2.4 million or 7.3% in the third quarter of 2014, and to 2.304 million or 7% in the third quarter of 2015.

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