ICAEW drops 2015 UK growth forecast from 2.5% to 2.4%
In contrast, organisation also forecasts that average wages will rise in real terms by 1.5% this year
UK companies are curbing their capital spending amid uncertainty about the result of the upcoming general election, and continuing concerns in the eurozone.
In response chartered accountants organisation ICAEW has cut its growth expectations for the UK economy in 2015 from 2.5% to 2.4%, and its forecast for business investment growth from 7.2% to 5.2%.
It seems the possibility of Greece leaving the eurozone and the news that China has lowered its growth target to 7% has made British businesses reluctant to invest. Domestically, the upcoming general election has left companies uncertain about whose business policies they’ll have to abide by come May.
Business investment fell by 1.4% in October to December 2014; the biggest quarterly fall since Q2 2009. This is in part due to oil and gas firms reducing their spending because of a slump in the price of crude, which has conversely benefited the consumer.
Thanks to a combination of low inflation, low oil and commodity prices and above average inflation wage growth British consumers are expected to lead the economic recovery. The average employee is set to be £400 better off in 2015, with the ICAEW forecasting the unemployment rate to improve to a pre recession average of 2015.
The government has argued that the UK economy should focus on investment, manufacturing and exports instead of debt fuelled consumer spending to secure a sustainable future.
Michael Izza, ICAEW chief executive, commented: “The potential slowdown in GDP growth is a clear sign that UK firms are pressing the pause button on their attempts to drive economic growth.
“Their exposure to international risks, ranging from the eurozone crisis to China’s cooling economy, has subdued their capital spending plans for the year ahead.
“We cannot overstate the effect of the general election either. Businesses remain concerned about the potential makeup of the next government and its policy towards business. Any steer towards a potential exit from the EU is also causing anxiety. All this means consumers are key to the recovery.”
Scott Corfe, ICAEW’s economic adviser, added: “With capital spending growth expected to slow this year, from a low base compared with other comparable countries, a rebalance economy isn’t going to emerge anytime soon.
“We do not expect the Bank of England to raise interest rates until the end of 2015 at the very earliest, and combined with low inflation it means that consumer spending will continue to drive the recovery.”