The collapse of the pound in the wake of the Brexit vote has done “more harm than good” to the British economy, according to the British Chambers of Commerce.
The pound experienced a record fall on the night of the 23 June 2016 referendum, prompting many Brexiteers to claim that this would stimulate exports and the UK’s manufacturing sector.
But Dr Adam Marshall, the BCC’s director general, unveiling the business group’s latest round of forecasts on Friday, poured cold water on these hopes.
“Our forecast suggests that the hoped-for rebalancing of the UK economy towards investment and export is unlikely to materialise in the medium term,” he said.
“The rising upfront cost of doing business in the UK, the uncertainty around Brexit, and the constraints created by skills gaps and shoddy infrastructure collectively outweigh any benefit arising from the recent depreciation of sterling. A cheaper currency does not automatically mean an export boom, no matter how some politicians and commentators will it to happen.”
In its forecast, the BCC raises its 2017 GDP growth prediction from 1.5 per cent to 1.6 per cent, but it cuts its 2018 outlook to 1.2 per cent, from 1.3 per cent previously.
The downgrade for next year is driven by lower consumer spending and a weak contribution from net trade, as imports are projected to rise more than previously expected.
The 2019 GDP growth forecast is also downgraded from 1.5 per cent to 1.4 per cent.
Suren Thiru, the BCC’s head of economics, said the UK economy is likely to remain on a “low-growth trajectory” and added that the plunge in sterling “has done more harm than good” by stoking domestic inflation, which has crimped real wages and household spending.
The CPI inflation rate in July was 2.6 per cent, up from 0.5 per cent at the time of the Brexit referendum, mainly due to the slump in the value of the pound.
Inflation has been outstripping average nominal wage growth since April, meaning that, in real terms, pay is contracting again.
The BCC forecasts the inflation rate to peak at 3 per cent in the final quarter of 2017, although this is lower than the 3.4 per cent forecast in its previous round of projections.
It says that inflation is likely to outstrip wages until 2019.
On a trade-weighted basis sterling is today 13 per cent lower than it was on the night of the vote.
On Thursday the pound was worth €1.0933, close to an eight-year low against the single currency. Airports bureaux de change are now returning less than a euro for each pound.
Against the dollar, sterling was $1.3093, around 12 per cent lower than at the referendum.