CBI upgrades UK growth forecast

The Confederation of British Industry (CBI) has revised growth forecasts upwards for this year and next with the UK all set to enjoy “decent quarterly GDP growth”.

The business lobby group now anticipates growth of 2.6 per cent in 2015 and 2.8 per cent in 2016 – up from its June forecast of 2.4 per cent and 2.5 per cent respectively.

The CBI attributes the increased growth forecasts to increasing household spending and “robust” investment growth. The group believes interest rates will subsequently rise in Q1 2016.

In June, it had anticipated interest rates rising from their historic low of 0.5 per cent from the start of April next year.

But it now says the improved growth picture alongside “more hawkish” comments from the Bank of England’s rate-setting Monetary Policy Committee had prompted the lobby group to bring its prediction forward.

“We now expect interest rates to rise to 0.75 per cent in the first quarter of 2016, and then rise at a slow pace thereafter,” the CBI said.

The CBI anticipates continued growth until the end of next year, averaging 0.7 per cent per quarter. It believes business investment and increased household spending are the key factors that will drive growth in the next 12 months.

Productivity is also reported to have helped boost wage growth across the UK; this combined with low inflation, has meant households have had more to spend.

The CBI also predicts Eurozone growth would remain “subdued for the foreseeable future”.

Rain Newton-Smith, director for economics, CBI, said: “Strong domestic demand and upbeat official data since our last forecast has boosted our outlook for 2015.

“We expect this strength to continue into next year.”

Date published 26 Aug 2015 | Last updated 26 Aug 2015