After three per cent growth last year, the UK is continuing to perform better than many other Western economies. The CBI’s upgrade of its growth forecast from 2.4 per cent to 2.6 per cent for the whole of 2015 builds on a couple of quarters of better than expected growth.
Household consumption is boosted by higher than forecast employment levels and almost non-existent inflation, while business investment is likely to rise by over 6 per cent this year. This combination should more than offset weak exports.
The domestic investment outlook for next year is clouded by uncertainty ahead of an EU referendum. And once inflation picks up again and interest rates start to rise, the consumer-led recovery will lose some momentum.
Prospects for the UK economy though remain good, particularly if productivity continues to recover. But to see the CBI’s expectation of 2.8 per cent growth for 2016, the world economy must have turned around.
Geoff Tily, TUC’s senior economist, says No
Global market turmoil means the CBI’s forecast was unfortunately timed. But its stance on the domestic economy was always going to look optimistic. This month, the Bank’s MPC sounded more cautious than expected, pointing to softer than expected underlying growth and weaker employment numbers.
While higher earnings inflation is welcome, there is still a huge amount of ground to make up following the longest squeeze on wages since Victorian times. Near-zero inflation here and across the world is not a good omen for the future.
Weaker demand is becoming the dominant global factor. It was disappointing to hear the CBI’s John Cridland claim “we all know that household finances and government finances are the same”.
Those of us who know they are not were already worried about the impact of a second parliament of spending cuts. If these coincide with a global slowdown, the sustainability of the CBI’s latest forecast will be the least of our worries.