BRITISH businesses are well placed to grow in 2015, a testament to their hard-work and resilience. It is particularly pleasing to see the manufacturing sector bounce back, despite signs of a slowdown in recent months. However we must aim for growth that is sustainable for the long-term rather than settle for second best.
With employment and investment intentions at historically high levels, it is now vitally important that firms are able to convert their growth ambitions into reality. Strengthening our business finance system, which constrains the growth aspirations of too many firms, will remain a decisive factor in securing a sustainable recovery.
Low interest rates and reduced regulation will also go a long way to creating an environment that encourages enterprise and wealth creation.
In spite of the QES nationally showing an improvement in export balances, the UK’s lacklustre export performance and severely adverse current account balance continue to act as drag anchors on GDP growth.
This need not remain the case: lack of growth finance, patchy help on the ground in overseas markets and a never-ending churn of short-term support schemes must be addressed without delay.
The UK’s economic recovery still faces several obstacles, intensified by the uncertainty of the General Election on May 7. Business optimism may not last if political point-scoring outweighs sound economic policies. All political parties must use the forthcoming election campaign to outline their plans to support long-term business growth and investment.
If current and future governments do the right things, there is no reason why the UK should not enjoy sustainable growth driven by re-energised, dynamic businesses.
The UK economy is orientated towards the service sector, which is driven principally by people rather than equipment and machinery. The free movement of people in the EU means that capacity is no longer a barrier to growth and upward pressure on wages is much less likely to occur.
With no signs of inflation and no upward pressure on wages, there is no justification for an early rise in interest rates.
The BCC holds the view that UK growth will stabilise well above 2% – a figure supported by the QES results – and that Britain’s medium-term economic growth will be slightly higher in the next few years than the recent forecast by the Office for Budgetary Responsibility.
However, many balances remain below the high levels of 2014, indicating that the overall pace of GDP expansion is easing.
In the face of weak growth in the Eurozone and domestic policies aimed at stabilising our public finances, a slowdown in economic growth may yet occur, despite increased strength and optimism from businesses.
Despite a slight improvement at the end of 2014, the current account deficit is unacceptably large. The UK needs a long-term push to rebalance the economy towards net exports and investment, rather than relying too heavily on consumer spending to keep growth going.
With inflation likely to stay around 1% for much of the next year, the MPC must delay interest rate rises for the time being.