UK economy could face slowdown, CEBR warns

28 Sep 15

The UK’s economic recovery may not be sustainable due to weak export prospects and falling business investment, a forecaster has warned.

In a forecast today, the Centre for Economics and Business Research warned that the current economic recovery may highlighted that household spending, rather than trade or investment, was set to account for the clear majority of the growth over the next five years.

This has led to concerns about sustainability of growth over the next five years, it added, as net trade will “act as a drag on growth over this timeframe as the UK continues to import far more than it exports”, it added. The current account trade deficit is expected to stand at around £77bn a year from 2015 to 2020.

As a result, CEBR expected the UK economy to grow by 2.5% this year, slowing to 2% in 2016 and then to average 1.7% a year until 2020.

This is more pessimistic that the Office for Budget Responsibility, which expects growth to remain above 2% over this period.

CEBR head of macroeconomics Scott Corfe said the projections reflected sluggish export growth and poor returns on overseas investments as the global economy stumbles.

The slowdown was being driven by substantial weakness in emerging markets, in particular China, holding back export prospects and curbing business investment.

“It’s clear that the global economy has deteriorated significantly over the past few months and there are significant downside risks to the UK’s own prospects,” Corfe added.

As a result, he expected the Bank of England to keep interest rates uncharged until at least the middle of 2016, given that inflation was expected to remain below the Bank of England’s 2% target.

Even when rates did rise, Corfe predicted increases would be “very gradual”, reaching only 2% by 2020.

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