Business growth expectations at highest levels for over a year says CBI

Oliver Gill
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CBI President Paul Drechsler has been a member of the board since 2012 (Source: Getty)

The prospect of an interest rate cut in 2016 is diminishing according to experts after the Confederation of British Industry (CBI) said that it expects a bumper Brexit bounce in the final quarter of 2016.

The CBI said that businesses across the manufacturing, service and distribution sectors are anticipating strong output growth for the next three months, jumping to their highest levels since September 2015.

"Firms are confident that autumn will bring a surge in activity," said the CBI’s chief economist Rain Newton-Smith.

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Experts said that the positive business sentiment will decrease the likelihood of a further interest rate cut this year.

"The robust CBI survey seemingly further dilutes the case for more Bank of England stimulus in the near term. I think the chances of another rate cut this year are currently rapidly diminishing," said Howard Archer, chief economist at IHS Markit.

Nevertheless, Archer still maintained that another rate cut is on the cards.

"I think the case for another interest rate cut from the Bank of England will increase early in 2017 and I believe they could well take interest rates down to 0.10 per cent in the early months of 2017," he said.

The sentiment was echoed by Simon French, chief economist at Panmure Gordon.

"We expect the UK bank rate to remain on hold at 0.25 per cent throughout the fourth quarter.

"[Although] recent Monetary Policy Committee statements have guided market participants to expect further monetary stimulus, we think this is unlikely [during 2016] when the uncertainty of the post-referendum economy favours a 'wait-and-see' approach from the Bank of England," he said.

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Prime Minister Theresa May confirmed reports that she plans to trigger Article 50 in early 2017 on the BBC’s Andrew Marr show this morning.

She said that it will be triggered “before the end of March”. The CBI has previously pointed out that such certainty would be welcomed by businesses.

“With businesses keen to build momentum for the rest of the year and into 2017, they want the government to outline clear plans for negotiations to leave the EU and deliver an Autumn Statement that will drive investment and deliver economic growth and prosperity,” said Newton-Smith.

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