CBI raises UK economic growth forecast

19th August 2013

The Confederation of British Industry (CBI) has upped its UK economic growth forecast for both this year and next but has warned that the consumption-led recovery needs to shift towards better business investment.

The UK business lobby group now anticipates that UK economic growth will reach 1.2 per cent in 2013, up from its 1 per cent prediction in its May forecast, after a better than expected second quarter, which saw the economy grow by 0.6 per cent.

A pick-up in confidence across a broad range of sectors, should spill over into next year and in 2014, the CBI expects the economy to gather further pace, forecasting 2.3 per cent economic expansion, from 2 per cent in May, as disposable income increases and business and housing investment support domestic demand.

It also foresees that a return to growth in the Euro area and broader global recovery will give a positive boost to exports but imports will also grow as the UK’s domestic situation improves, so the trade contribution to growth will remain small writes Philip Scott.

The CBI’s revision of its forecasts follows that of influential think-tank, the National Institute for Economic and Social Research (NIESR), which at the start of August also declared its outlook had improved, on the back of a better consumer spending. The group now expects the UK’s GDP to expand by 1.2 per cent this year and by 1.8 per cent in 2014, a positive revision of 0.3 percentage points in both cases.

John Cridland, CBI director-general, says: “The economy has started to gain momentum and confidence is picking up, but it is still early days. We need to see a full-blown rebalancing of our economy, with stronger business investment and trade before we can call a sustainable recovery. We hope that will begin to emerge next year, as the Eurozone starts growing again.

“The Government needs to get behind talented UK businesses to help them break into new export markets and sell great British products and services around the globe.”

Household spending is expected to slowly strengthen in the second half of 2013 and through 2014, as confidence lifts and credit conditions continue to improve. This will be increasingly supported by improving spending power as inflation gradually falls back and disposable income picks up, against the backdrop of a stable labour market says the CBI.

Meanwhile, it expects business investment and exports to strengthen as the global economy picks up and the Eurozone returns to growth, confidence rises, and credit conditions continue to improve. Business investment is forecast to grow by 7.3 per cent in 2014 from -2.8 per cent in 2013. Export growth is expected to increase from 0.7 per cent in 2013 to 4.9 per cent in 2014, but the net contribution of trade to GDP growth will remain muted as domestic demand boosts import growth from -0.8 per cent in 2013 to 4.4 per cent in 2014.

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