The British Chambers of Commerce (BCC) has published its latest Economic Forecast and raises its expectations for UK GDP growth to 1.7% for this year, and to 2.2% for 2011. Despite the more positive short-term view, the business group also predicts that the pace of growth will slow sharply over the medium-term as the Coalition Government’s tough deficit-reduction measures kick in.

The main features of the Forecast include:

•BCC is now forecasting GDP growth of 1.7% in 2010, 2.2% in 2011 and 1.8% in 2012. In June, we predicted growth of 1.3% in 2010 and 2.0% in 2011. The Coalition’s austerity programme and the worsening global background are likely to dampen Britain’s medium-term prospects.

•Unemployment will increase over the next 18 months. This forecast envisages unemployment rising from 2.46 million to a peak of 2.65 million (8.3% of the workforce) in the first half of 2012.

•With tax receipts showing surprising buoyancy in recent months, we expect the deficit to fall faster than planned. We predict large declines in public sector net borrowing (PSNB), to £144bn (9.7% of GDP) in 2010-11, £110bn in 2011-12, and £83bn (5.1% of GDP) in 2012-2013.

•CPI inflation will remain above the 2% target until the end of 2011, but it is likely to fall below 3% over the next year. In annual average terms we forecast CPI inflation at 3.2% in 2010, 2.7% in 2011 and 1.7% in 2012. RPI inflation is forecast to average 4.7% in 2010, 4.1% in 2011 and 2.8% in 2012.

•The Monetary Policy Committee is expected to hold interest rates at 0.5% until the second quarter of 2011. By the end of 2011, we expect the Bank Rate to hit 1.75%.

British business have to appreciate that will have to be made in the next few years, as the tough but necessary austerity measures begin to bite. And that that reducing the deficit, with a clear focus on spending cuts, is vital in order to restore confidence, international credibility and stability. However, deficit reduction on its own will not deliver a sustainable recovery.

We need 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. Failure to get this right poses the biggest risk to recovery.”

With house prices falling l 0.9% last month, following a 0.5% decline in July, it was the first time that prices had fallen for two consecutive months since February 2009. The average house price now stands at just over £166,500.

So the question has to be are we heading for a double dip or not???

Kathy Tilbury

President of Dorset Chamber of Commerce & Industry