CBI cuts UK economic growth forecasts, warning the recovery still faces a number of headwinds

8th June 2015


The Confederation of British Industry (CBI) has cut its UK economic growth forecasts warning that the recovery is still facing a number of headwinds.

The business lobby group is now predicting 2.4% growth for 2015 and 2.5% in 2016, down from its February’s forecast of 2.7% and 2.6% respectively.

It added that the reduction however was “largely due to weaker than expected official GDP data for the first quarter”, which it believes is a temporary blip.

Overall it feels that the British economy is on a “firm footing”, with it having grown faster than previously thought in 2014. But following growth of just 0.3% during the first three months of the year, the CBI is predicting “a strong rebound in the coming months”. It anticipates quarter-on-quarter growth of 0.8% between April and the end of June, with 0.7% expansion in the third quarter and 0.6% during the final three months of the year.

This also follows the official upgrade of growth in 2014 as a whole to 2.8%, from 2.6%. But the group asserted that despite growth prospects looking healthy at home, there are headwinds to the recovery, “with a still sluggish Eurozone and renewed uncertainty over Greece’s economic future”.

Rain Newton-Smith, CBI director of economics, said: “The UK is up among the lead runners in the pack of G7 economies. While we are seeing a strong domestic picture, cracking the productivity conundrum would really help cement the recovery.”

But he added that “overseas the picture is less rosy”.

Newton-Smith said: “The eurozone has regained some momentum this year, thanks in part to the European Central Bank’s quantitative easing programme, but growth is unlikely to pick up much further as the initial boost from falling oil prices fades. Recent talks over Greece underline the need for a decision on extending bail out financing. Meanwhile, weaker US growth and the slowdown in China, coupled with the strength of Sterling against the Euro, are acting as a drag on exports.”

While inflation is set to stay below 1% over the course of 2015, the organisation believes it should rise relatively quickly from late 2015, reaching 0.6% in the fourth quarter and 1.3% in early 2016, as the effect of falling oil and food prices continues to unwind.

The CBI is predicting average annual inflation of 0.2% in 2015 and 1.6% in 2016 which it believes should “continue to boost real incomes, supporting robust consumer spending of 2.7% in 2015 and 2.5% in 2016”.

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