CBI upgrades UK economic forecast to 2.6 per cent GDP growth in 2015
A rise in household spending along with robust investment growth will help fuel faster “twin engine” growth in the UK economy, according to the Confederation of British Industry (CBI), which expects an interest rate rise in early 2016.
In their latest economic forecast, the CBI upgraded its expectation to 2.6 per cent GDP growth for 2015, up from 2.4 per cent in June. The business lobbying organisation also improved its outlook for 2016, forecasting GDP growth of 2.8 per cent, up from 2.5 per cent.
This is higher than the Office of Budget Responsibility forecast of 2.4 per cent for 2015.
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John Cridland, CBI director general, said: “The UK’s labour market has sent mixed messages over the last couple of months, with employment falling and unemployment rising, while wage growth has continued to improve. But with GDP growth remaining robust over the second quarter, this suggests that productivity has risen."
Falling commodity prices are also helping give a boost to household spending, with business investment likely to remain healthy, the CBI statement said.
However, there are international risks. China’s economic slowdown will weigh on global growth, while a strengthening pound will hamper UK export competitiveness.
Read more: UK GDP to be revised up after construction falls less than thought
Rain Newton-Smith, director for economics at CBI, said:
We’ve revised down our exports forecast for 2016, largely due to slower growth in China bearing down on global prospects, and a stronger Sterling.
It’s important to remember, however, that even if China only grew by five per cent this year, that’s the same as adding an economy the size of Belgium to the global economy each year. And China’s transition away from credit-fuelled investment growth to a more consumer-oriented economy provides plenty of opportunities for British businesses.
Following more hawkish comments from the Bank of England recently, Cridland added, in combination with a bit more growth momentum, the CBI now expects "interest rates to rise to 0.75 per cent in the first quarter of 2016, and then rise at a slow pace thereafter".
“This is earlier than our previous prediction of an increase in Q2. Across the Atlantic, the US Federal Reserve looks likely to raise interest rates before Christmas,” he added.