By Mark Smulian | 19 August 2013
Confidence about growth is increasing but the economy still needs to switch emphasis from consumption to investment and trade, the CBI said today as it raised its growth forecasts for 2013 and 2014.
The business lobby now expects growth of 1.2% in 2013, up from 1.0% in its May forecast, citing a better-than-expected second quarter and signs of a pick-up in confidence across most industrial sectors, including services, construction and manufacturing.
For 2014, the CBI expects a 2.3% hike in gross domestic product up from its 2.0% prediction in May.
This was based on expected increases in disposable income and in business and housing investment to support domestic demand, together with a return to growth in the eurozone and broader global recovery leading to export growth.
Trade’s overall contribution to the economy would though remain small as rising domestic demand would also suck in imports, the CBI said.
Director general John Cridland said: ‘The economy has started to gain momentum and confidence is picking up, but it’s 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.’
According to the forecast, household spending will slowly strengthen in the second half of 2013 and through 2014, as confidence improves and credit becomes easier to obtain.
This will be increasingly supported by improved spending power as inflation gradually falls and disposable income picks up, it said.
Global and, in particular eurozone, recovery is expected to contribute to growth in business investment of 7.3% in 2014 from -2.8% in 2013.
Export growth is expected to increase from 0.7% in 2013 to 4.9% in 2014.
The CBI forecasts that the unemployment rate will be 7.8% in 2013, falling to 7.6% in 2014, still well above the 7% level at which Bank of England governor Mark Carney has said he would review low interest rates.
CBI director of economics Stephen Gifford said: ‘Despite a relatively stable global environment over the last year, risks remain as financial markets move to a new regulatory environment and the eurozone continues to evolve.
‘Meanwhile, emerging markets are facing structural challenges, particularly as China rebalances towards domestic consumption, which indicates muted growth prospects.’
