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CBI predicts UK growth slowdown in H2

by: Hannah Smith
  • 04/09/2014
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CBI predicts UK growth slowdown in H2
The CBI business lobby group has predicted UK growth will slow in the second half of the year as productivity weakness and slower wage growth bites.

The economy grew by 0.8% in each of the first two quarters, but the CBI predicts a decline to 0.7% in the third quarter and 0.6% in the fourth.

Its growth forecasts for 2014 and 2015 are unchanged at 3% and 2.7%. Rising business and consumer confidence, improving credit conditions and reductions in uncertainty over demand have been strong growth drivers, the group said.

However, after the recent period of acceleration, it predicts growth will moderate in the second half of this year to 0.7% (Q3) and 0.6% (Q4), as the initial positive impact of those factors wears off.

This easing of momentum also reflects the continued weakness of productivity and slow wage growth, but this will gradually improve in 2015, with average earnings expected to grow by 1% this year and by 2.4% next year, the CBI said.

One explanation for the weakness in productivity is that tight credit conditions have held back business investment growth. Despite being 10.6% higher than a year ago, business investment is still 16% below its pre-crisis peak.

John Cridland (pictured), CBI director-general, said: “The UK’s recovery is on solid ground, with our quarterly growth on average outstripping G7 competitors over the last year. For the rest of this year, we expect growth to get onto a more even keel and the recovery to become further entrenched next year.

“Business investment has been growing better than expected so far this year, but it still has a lot of catching up to do to get back to its pre-crisis level.”

Cridland said UK businesses still faced uncertainty in the form of the Scottish independence vote later this month, and next year’s general election, as well as geo-political risks elsewhere in the world.

Rain Newton-Smith, the group’s director of economics, said: “There are a few early signs that momentum in the economy may ease slightly in the second half of the year.

“However, growth is set to remain robust, and there are positive signs that the recovery is continuing along the right track.”

Without a more significant pick-up in in wage growth over the remainder of the year, and with CPI inflation set to stay below 2%, the CBI maintained its view that the first interest rate rise will happen in the first quarter of 2015.

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