Weak Eurozone is dragging down UK growth forecasts

 
Tim Wallace
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BRITAIN’S burgeoning economic recovery is still being held back, economists at the Institute of Chartered Accountants in England and Wales (ICAEW) warned today.

It chopped its 2014 GDP growth forecasts for the UK from 3.4 per cent to 3.2 per cent as weak de­mand across the Channel was now hitting British export volumes.

Worries over the state of the Eurozone, as well as an expected rise in interest rates, is also set to slow business investment.

The analysts believe investment growth will fall from 8.8 per cent this year to 5.2 per cent in 2015.

“We must be realistic. Our trading partners, particularly in the Eurozone, are struggling. So while exports aren’t doing as well as we’d all like, it is better to have growth based on domestic consumption than no growth at all,” said ICAEW boss Michael Izza.

“We look set to be the fastest growing G7 economy in 2014, and this is due to the determination of business up and down the country who are looking to increase invest­ment in themselves and their staff.”

He noted a series of more positive domestic indicators – although business investment will slow next year, the ICAEW has hiked its forecasts this year from growth of 8.2 per cent to 8.8 per cent.

The economists also expect unemployment to fall from 6.2 per cent on average over 2014 to 5.5 per cent in 2015.

Such a fall could have signif­icance for interest rates – Bank of England governor Mark Carney estimates 5.5 per cent to be the rate of unemployment at which firms are operating at capacity, the economy is growing at a healthy pace and where inflation is holding steady at around its two per cent target.

As a result, once unemployment falls close to this level, it could be time to raise interest rates to stop the economy overheating and price pressures building up dangerously.

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