The economy will grow more quickly than previously expected this year and interest rates will stay lower for longer, the British Chambers of Commerce has predicted.
The BCC lifted its growth forecast from 2.6 per cent to 2.7 per cent for 2105 and said that a relatively robust pace of growth at 2.6 per cent would be sustained for another two years.
Stronger-than-expected growth in consumption and a healthy services sector were responsible for the decision to upgrade its growth expectations.
However, it issued a warning to the next government, saying that it should be judged on whether it succeeded in rebalancing the economy away from its dependence on “fickle” consumption to exports and business investment.
The slowdown in business investment this year was a warning sign that politicians needed to do everything they could to create a stable and positive investment climate, John Longworth, director-general of the business group, said. “Politicians need to focus on the fundamentals, not on short-term vote-winners, if we are to have guaranteed prosperity in the years to come.”
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Lower food, oil and other commodity prices were pushing up short-term growth and reducing inflation, allowing interest rates to stay lower. The BCC pushed back its forecast for the first rise in base rate from the present 0.5 per cent from the third quarter of 2015 to the first quarter of 2016.
The revised 2015 growth forecast matches that of the IMF but is still shy of the Bank of England’s, which expects 2.9 per cent for this year and next.