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BCC warns of difficult years ahead for business

The BCC revealed in its quarterly economic forecast, published in mid-August,
that it believed there was a “distinct possibility of a technical recession” for
the UK.

Over the next couple of quarters, the BCC expects UK GDP growth to be
“slightly negative or zero”, with continued weak growth lasting to the end of
2009, or early 2010. It warned that the Monetary Policy Committee should not
worsen the economy’s chances of hitting back at prolonged turmoil by hesitating
to cut interest rates. Its own forecasts saw UK Bank Rate being cut to 4.75% in
the last quarter of 2008, followed by a further cut to 4.50% the first quarter
2009 ­ but concluded that, in any event, British businesses faced “two very
difficult years”.

“Our view is that the threats to growth are more serious and more immediate
than the risks of higher inflation.

The UK economy urgently needs an interest rate cut to counter threats of
recession,” said BCC director general, David Frost.

“While a marked slowdown in activity is likely over the next 18 months, even
if interest rates are cut when inflation peaks, the correct policy decisions are
still needed to ward off the threats of a serious and prolonged recession,”
Frost added. “The longer the MPC waits before cutting rates, the bigger the
danger that the economic situation would deteriorate.”

The BCC also said up to 300,000 people would lose their jobs by 2012, pushing
unemployment to almost two million. “An increase above two million cannot be
ruled out,” said BCC’s economic adviser (and Financial Director
contributor) David Kern.

Commenting on speculation that the government would breach its ‘Golden Rule’
of only borrowing for investment over the economic cycle, the BCC said this
would likely happen, but that such a move was needed.

“This would clearly undermine credibility and confidence in the short-term,”
BCC director general Frost said. “Nevertheless, we believe such a breach would
be justified in order to help alleviate a very severe economic downturn.”

www.statistics.gov.uk

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