Business Blog Posts

5 December 2010 Last updated at 09:15 ET

The economy will grow by less than expected next year, but growth in 2012 will be better than predicted, the British Chambers of Commerce forecasts.

It downgraded its forecast for the UK's GDP growth in 2011 from the 2.2% it predicted in September to 1.9% now.

The BCC blamed the eurozone debt crisis, austerity cuts, weak housing market and VAT rise from 17.5% to 20%.

The Office for Budget Responsibility (OBR) recently downgraded its 2011 growth forecast from 2.3% to 2.1%.

The BCC was even more bearish, suggesting year-on-year growth will slow from 3% in the final quarter of 2010 to 1.4% in the second half of next year.

Business tax

But it said the economy was sufficiently robust to avoid slipping back into recession - and was more upbeat moving forward because of private sector growth.

It upgraded its GDP growth forecasts for 2012 from 1.8% to 2.1% - but that was still significantly lower than the OBR's 2.6% estimate.

The BCC, which represents hundreds of small businesses, also reduced its unemployment forecast for the second half of 2012, estimating the number of people out of work to fall by 50,000 to 2.6 million.

Inflation, meanwhile, would remain above 3% for the whole of 2011, it added.

BCC director general David Frost said: "British business is willing and able to drive the recovery, but it can only do so if the government will back its words with deeds.

"The government must avoid at all costs new business taxes and measures that damage initiative, enterprise and innovation."

He predicted the Bank of England will keep interest rates on hold at 0.5% next week, and will continue to hold them at historically low levels until at least the second half of 2011.

Stimulating growth

There are concerns that government spending cuts and tax rises, including the VAT increase in January, will undermine the recovery.

The UK economy grew by 0.8% between July and September, but most economists expect this rate to slow once the government's austerity measures kick in.

One of reasons is increased unemployment through public sector job losses as a result of the spending cuts.

For this reason, Mr Frost said he expected the Bank of England to pump more money into the economy to stimulate growth next year - a process known as quantitative easing.

The Bank has already committed �200bn to quantitative easing in order to boost the recovery.

5 December 2010 Last updated at 07:51 ET

Rolls-Royce lost out on a key contract with the Spanish military following lobbying of Spain's Prime Minister Jose Luis Zapatero by Washington, according to leaked US diplomatic cables.

Mr Zapatero intervened to hand the helicopter engine contract to US firm GE after the military had decided to go with Rolls-Royce, the cables suggest.

The contract awarded in 2007 is estimated to have been worth �200m.

The cables were released by Wikileaks and published on the Guardian website.

The latest leak comes a day after cables suggested senior Chinese officials had orchestrated the hacking of Google earlier this year that forced the search engine to quit China.

Personal intervention

The latest cables detail how US Ambassador Eduardo Aguirre was "personally convinced that Zapatero intervened in favour of GE".

"Although there was considerable all-source evidence to suggest that the [Spanish] Ministry of Defence decided to award the contract to Rolls-Royce, Moncloa - the office of the president - overturned the decision and it was announced that GE had won the bid," they say.

According to the cable, Mr Aguirre told the prime minister that chief executives of leading US firms may stop bidding for Spanish contracts due to "a growing perception" that the Spanish government was "not welcoming" US bids.

In response, Mr Zapatero told the ambassador "to let him know if there was something important to the US government and he would take care of it".

Subsequently, the US government agreed "to advocate on behalf of GE" in the bid against Rolls-Royce.

When the ambassador told the PM that GE had said "failure to win the contract would cause that branch of GE to cease operations in Spain", Mr Zapatero duly stepped in, the cables suggests.

5 December 2010 Last updated at 06:24 ET

Both the US and South Korea have hailed their long-awaited free trade agreement negotiated this weekend as a "win-win" deal.

However, the final pact, which was originally signed in 2007 but never ratified, has been heavily criticised by South Korean opposition parties.

They branded the compromises made by Seoul "humiliating and treacherous".

The deal needs parliamentary approval in both countries before it can be finally ratified.

President Barack Obama said on Saturday the agreement "includes several important improvements and achieves what I believe trade deals must do. It's a win-win for both our countries".

South Korean Trade Minister Kim Jong-Hoon also described the deal as a "win-win".

Negotiations on the free trade deal broke down in the run-up to last month's G20 meeting of leading economies in Seoul.

Car tariffs

A key sticking point to the 2007 deal were tariffs imposed by South Korea on US car imports.

But a compromise was agreed - the US will lift its 2.5% tariff on South Korean cars after four years, while South Korea will halve its 8% tariff with immediate effect, before lifting it in four years.

South Korea also agreed to allow the US to export up to 25,000 cars a year that do not meet its more stringent safety requirements.

In return, the US agreed that South Korea could extend its tariffs on US pork imports for another two years.

The deal does not address US concerns about tariffs on its beef exports.

'Cheated'

The deal has proved deeply unpopular among opposition politicians in South Korea.

"We have been hit by the North with cannons and now we we're being hit by the US with the economy," said Park Jie-Won of the Democratic Party, referring to North Korea's recent shelling of a border island.

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The Liberty Forward Party said the public had been "cheated by the deal".

"The concession garnered in the livestock products was not significant, so it was a deal that failed to meet national interests," said the party's Kwon Sun-Taik.

Boosting exports

President Obama hailed the deal on Saturday as "essential" for boosting US exports.

"The agreement will contribute significantly to achieving my goal of doubling US exports over the next five years.

"In fact, it's estimated that today's deal will increase American economic output my more than our last nine trade agreements combined," he said.

Domestic consumption currently accounts for more than two-thirds of the US economy, and Mr Obama is keen to re-balance the economy by increasing exports.

This is also a key strategy in securing a sustainable recovery from the downturn.

The US recovery remains fragile, with disappointing unemployment figures released on Friday contributing to concerns that the world's largest economy is struggling to shake off the recession.