Despite an "encouraging" pick-up in growth in the first quarter of the year, which means the UK will likely dodge another recession, the business lobby group have warned that the country’s economic expansion is still "much too slow", having predicted that the UK economy will grow by 0.6 percent throughout the year.
As a result of their predictions, the BCC have called for the government to take forceful action to help the economy, with the director general of the group, John Longworth, saying: “The UK economy is still facing huge challenges and the recovery is much too slow.
“The UK has the potential to recover but to achieve that the government has to set businesses free to grow.
“As the public sector's share of economic activity shrinks over the next few years, forceful measures are needed to make it possible for businesses to drive recovery.”
The group’s predictions come on the back of the OECD’s predictions last week, which suggested the UK had already slipped back into recession following two consecutive months of negative growth; however the group said the government can take measures to assist the growth.
The BCC believe the government needs to take "radical" steps to set businesses free, with the group suggesting the creation of a a state-backed bank to boost lending to small and medium-sized enterprises (SMEs), along with ramping up its credit easing scheme, scrapping this month's 5.6 percent hike in business rates, and speeding up the proposed improvements to transport infrastructure.
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Depending on what you read and who wrote it, the UK economy will either contract in Q1, taking the country back into recession, or enjoy a small amount of growth.
The Organisation for Economic Co-operation and Development (OECD) is saying that there will be an annualised contraction of 0.4 per cent for GDP, suggesting a 0.1 per cent contraction compared with the previous quarter.
However, figures from the Office for National Statistics (ONS), out last week, show that the UK service sector, which accounts for around 75 per cent of the UK economy, grew 0.2 per cent in January alone.
Governor of the Bank of England, Sir Mervyn King, foresees a ‘zig-zag’ pattern, predicting that the economy will continue to fluctuate between positive and negative growth throughout the year, as it has been since the middle of 2010.
And according to the CBI, “growth will restart in 2012, but high levels of uncertainty around the economic outlook, mainly driven by the situation in the euro area, mean growth will remain subdued, particularly in the first half of this year.”
Analysts are divided on the matter. Howard Archer at IHS Global Insight said: "While services output was hardly spectacular in January, it was a solid enough performance after a decent gain in December and supports hopes that the economy has returned to growth in the first quarter."
But David Blanchflower writing in The Independent today believes the OECD, saying: “A big day on the economic calendar will be 25 April when the first estimate of GDP growth for Q1 2012 is released. I also expect the number to be negative.”
Speaking of the OECD’s prediction, Chancellor George Osborne said: "This is a forecast... Our own forecast from our own independent body, which we published last week, says we are going to avoid a recession."
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A report by the House of Lords claims that the European Union's planned financial transaction tax amounts to a "severe threat" to the City of London and should be rejected by the Government.
The report by the Lords committee on Financial and Economic Affairs has claimed that the proposed financial transaction tax would not meet its stated objectives.
Within the report, it is also stated that the introduction of the financial transaction tax would force many of the financial businesses to leave the UK, which in turn would have a “highly damaging impact” on the British economy; which it was announced earlier this week has contracted for two consecutive periods.
The Lords committee has said within their report: “The Government should absolutely not agree to the proposals in their current form.
“There is huge uncertainty about the impact of any financial taxation proposal on the UK and the Government need to redouble their efforts to influence the debate.”
Even if the UK do reject the tax, which George Osborne called “a bullet aimed at the heart of London”, it is set to cost British-based companies as much as 22 billion euros a year and cause 4,500 job losses, according to a recent study.
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Forecasters from the Organisation for Economic Co-Operation and Development (OECD) have said that the UK has slipped back into recession; after its economy shrank again during the first three months of 2012.
It had been widely expected that despite an end of year slump in 2011, Britain would avoid a double-dip recession as a result of the economy growing within the first three months of last year.
However, yesterday’s announcement that the British economy had contracted by 0.3 percent during the final quarter of 2011stoked fears that the economy could once again slip into recession.
These fears will be extended following the OECD’s figures, with the Paris based group expecting economic output to fall at an annual rate of -0.4% during this first quarter; which will officially see the UK slip back into recession following two consecutive months of negative growth.
The news will come as a blow to the Chancellor, George Osborne, who in his budget speech last week predicted that the economy would avoid slipping into recession.
During his speech last Wednesday, the Chancellor announced that the Office for Budget Responsibility had estimated the UK would be in positive growth within the first quarter of 2012 – with the final growth being predicted as 0.8 percent in 2012, 2 percent in 2013, 2.7 percent in 2013 and in 2015 and 2016 3 percent.
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The Bank of England’s governor, Sir Mervyn King has said that he expects the UK economy to contract between April and June, as a result of the Queen’s Diamond Jubilee Bank Holiday.
During a speech at the House of Lord’s Economic Affairs Committee, Sir King forecasted a repeat of last year, when the Royal Wedding Bank Holiday hit output.
Sir Mervyn King told the House of Lords: “We do expect quite possibly a fall in output in the second quarter, followed by a rise in the third quarter, as we will lose an extra day's work – it doesn't necessarily follow that we will lose that whole day's output – because of the national bank holiday.
“Last year we saw that pattern again. We would expect that to happen again.”
Along with predicting that the extra Bank Holiday would have an impact on the UK economy, Sir King told the committee that the economy was still not back to normal following the financial crisis; and he warned that it would take some years before the country is back on track, stating the economy "still felt like a crisis.”
The Bank of England governor did offer a glimmer of hope, however, by adding: “We are going through a major period of deleveraging, we still have some way to go in that respect and we still have the problems in the Euro area. It will take a number of years before we are through all this.
“I see no economic reason why we cannot, in the long run, go back to the sort of growth rates we had before.
“Once we come through this crisis we will able to get back to that sort of period again, but it will take some time.”
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