UK gross domestic product (GDP) will grow to 2.2% in 2011 but will decline in the medium-term, the British Chamber of Commerce has predicted.
The BCC’s latest Economic Forecast raises expectations for UK GDP growth to 1.7% for this year, and to 2.2% for 2011.
Despite the positive short-term forecast though, the pace of growth will slow sharply over the medium-term as the government’s tough deficit-reduction measures take effect, according to the report.
David Frost, the BCC’s Director General, said: “British business appreciates that sacrifices will have to be made in the next few years, as the tough but necessary austerity measures begin to bite.”
While the BCC has praised the government’s dedication in reducing Britain’s budget deficit by restricting public spending, the organisation has warned that the cuts must be combined with a successful growth strategy to ensure the economy’s productive potential is supported.
Frost added: “There must be a relentless focus on ensuring that business is able to deliver growth and create employment. We need policies that rebalance the economy towards wealth-creating businesses, and enable the private sector to invest, export and create new jobs.”
The group also said interest rates must be kept low to aid recovery.
BCC Chief Economist, David Kern, commented: “Recent improvements in the UK labour market mask worrying developments, which pose serious threats to Britain’s productive potential. Unless the labour market remains flexible during the recovery, and private sector employers are encouraged to expand, there is a risk that falling productivity would damage Britain’s medium-term growth prospects.“