CBI revises up 2015 growth forecast to 2.6%

24 Aug 15

Higher household spending and low inflation will boost the recovery, the CBI said as it upgraded its UK growth forecast for the next two years.

In its latest report on the economy, the business lobby said it now expected growth of 2.6% in 2015, up from 2.4% forecast in June, and 2.8% in 2016, up from 2.5% predicted previously.

Director general John Cridland said there were encouraging signs of “twin engined growth of household spending, spurred by stronger wage increases and low inflation, buttressed by business investment”.

He added: “We’re also seeing tentative signs of productivity picking up.

“But the outlook on exports is somewhat muted: the strong pound is hampering our competitiveness abroad and growth in the eurozone, our biggest trading partner, and will remain subdued for the foreseeable future, particularly given renewed uncertainty.”

Rain Newton-Smith, the CBI’s director for economics, said strong domestic demand has boosted the outlook for 2015 and 2016.

“But pipeline inflationary pressures are building, due to stronger domestic demand and recovering wage growth,” she added.

“Our members are talking more about capacity constraints and skills shortages. Along with more hawkish noises from the Bank of England’s Monetary Policy Committee, we now expect quarter 1 2016 is the time for that first, very gradual increase in interest rates here in the UK.”

The report forecast that the consumer prices index measure of inflation was set to remain below 1% through to the end of this year, due to a fall in global commodity prices. Inflation should reach around 1.8% by the end of 2016, but this is expected to be lower than earnings growth, providing a further boost to the economy.

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