The Confederation of British Industry (CBI) has nudged its UK forecast down to 2.4% growth for 2015 and 2.5% in 2016, due to headwinds in Europe including fears over the referendum outcome.
However, the business body said the British economy is on a firm footing and expects ‘solid, steady and sustainable growth predicted into 2016.’
Following first quarter growth of 0.3%, the CBI predicts a strong rebound in the coming months with quarter-on-quarter growth of 0.8% in Q2, 0.7% in Q3 and 0.6% in Q4.
This also follows the official upgrade of growth in 2014 as a whole to 2.8%, from 2.6%.
John Cridland, CBI director-general, said: “Our members are feeling more upbeat than some of the recent official numbers suggest, with our surveys showing that retail and the service sectors in particular are performing strongly.
“Businesses on the ground are seeing a pretty solid recovery. Business investment is making a strong contribution to growth, while solid consumer spending is being underpinned by rock bottom inflation, low interest rates and rising incomes.
“Risks remain in the form of economic instability in Greece and a sluggish Eurozone, and clearly the EU referendum is a hot topic in Britain’s boardrooms. Businesses now have certainty that the referendum is happening, but not the outcome. However, most of our members are clear they want to remain in a reformed EU and will get behind an ambitious reform agenda.”
Rain Newton-Smith, CBI Director of Economics, said explained the UK is among the lead runners in the G7 pack, but it needs to crack the ‘productivity conundrum.’
Inflation is set to stay below 1% over the course of this year, he said, but it should rise relatively quickly from late 2015, from 0.2% in Q3, to 0.6% in Q4, and to 1.3% in 2016 Q1 as the effect of falling oil and food prices continues to unwind.
Average earnings are expected to grow faster than inflation – at 2.0% this year and 2.4% next year. The unemployment rate will continue to edge down to low levels from 5.5% in 2015 to 5.3% in 2016.
“House price inflation picked up in March on a year earlier, bringing five consecutive months of slowing prices to a halt, but it is expected to ease from 5.5% this year to 2.8% in 2016,” said Newton-Smith.
