Business group the CBI ups its economic growth forecast for the UK

16th February 2015

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Against a backdrop of lower oil prices and inflation business lobby group the Confederation of British Industries (CBI) has upped its 2015 economic growth forecast for the UK.

The CBI now anticipates the UK economy will grow by 2.7% this year, up from its previous prediction in November of 2.5%.

In its latest economic update the group highlighted that job creation continues apace and wage growth is finally picking up.

Coupled with low inflation, it believes this will give a boost to real household incomes, going some way to improving living standards. In addition lower energy prices are also feeding through to lower operating costs for companies, leaving more space for investment.

The price of oil is expected to remain below $65 per barrel by the end of 2016. On the back of lower oil prices, consumer price inflation is expected to stay below 1% throughout most of 2015.

But while the risk of deflation is growing, the CBI does not see a sustained period of widespread falling prices as likely, with the downward pressure from the oil price effect unwinding over time.

Its brighter outlook for growth this year also reflects the likelihood that the Bank of England’s Monetary Policy Committee will not raise interest rates until early next year, which it said should help to support growth of 2.6% in 2016.

However it said headwinds remain, chiefly on the back of political volatility, both domestic and foreign, given the upcoming UK general election and Greece’s fiscal position remains in the spotlight while instability continues in Ukraine. As such exporters are finding it harder to secure orders and net trade is unlikely to provide much of a boost to growth over the next two years.

Katja Hall, CBI deputy director-general, said: “UK growth continues to outshine its counterparts in Europe and progress is ‘steady as she goes’. While lower oil prices are keeping costs down for businesses and consumers, the North Sea oil companies are suffering, harming jobs and investment in the industry.

“Now is not the time for complacency, but falling unemployment coupled with improving wage growth and rock bottom inflation should mean that people see more money in their pockets. But businesses are looking on anxiously as insecurity continues to troll the Eurozone and instability remains elsewhere.”

Overall the CBI expects GDP growth to remain steady throughout this year, rising by 0.7% each quarter. “GDP is then forecast to grow strongly in 2016, by 2.6% over the year as a whole. This translates into growth of 0.6% a quarter,” adds Hall.

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