UK economic growth steadily building, says CBI

UK economic growth is forecast to grow at a higher rate through to the end of 2014 than previous predictions, says the Confederation of British Industry (CBI).

UK economic growth will accelerate further in 2015, it adds.

Over the coming years, business investment and net trade will become progressively greater factors in driving economic growth.

On the eve of its annual conference, the CBI’s latest economic forecast predicts that that UK economic growth will reach 1.4% for 2013, compared to 1.2% which was forecast in August.

UK economic growth forecast improved after better than expected growth in Q3 2013 as well as improved confidence across a wide range of sectors, including manufacturing, services and construction.

On October 10th Market Business News reported that UK economic growth accelerated to 0.8% in Q3 2013, compared to 0.7% in Q2 2013.

Fourth quarter growth is expected to be more moderate, at 0.5% (compared to Q3). The CBI says this reflects some of volatility in investment and trade data.

Regarding UK economic growth, for 2014 and 2015 the CBI forecasts:

  • 2.4% GDP growth in 2014 (compared to 2.3% predicted in August)
  • 2.6% GDP growth in 2015.

The CBI also sees increases in household disposable income and business and housing investment in 2015.

As government spending starts to drag on GDP, 0.6% UK economic growth is expected during each quarter of 2014.

Imports are expected to continue to grow as the country’s domestic situation gets better. Euro area economic growth and a broader worldwide recovery should help boost exports in 2014 and 2015.

CBI Director-General, John Cridland, said:

“The UK is now set fair for growth with confidence returning to Britain’s entrepreneurs. The recovery that started in the service sector has fanned out to manufacturing and construction, and is shaping up to be more broad-based.”

“The recovery won’t be spectacular, just slow and steady, but appears more solid and better-rooted. We’re also expecting business investment to pick up over the next two years and beyond, and net trade will begin to make a stronger contribution to growth. By 2015, the CBI is forecasting growth of 2.6%.”

Drivers of UK economic growth to broaden

As confidence improves and credit conditions get better, household spending should gradually strengthen through 2014 and 2015. This will reduce the precautionary measure to save.

As earnings grow more strongly and inflation falls consumer spending power will expand.

The CBI added “Meanwhile, business investment and exports are forecast to gradually strengthen. Business investment growth is forecast to improve from -4.9% in 2013 to 6.9% in 2014 and 8.3% in 2015.”

Exports are predicted to grow by:

  • 1.3% in 2013
  • 3.6% in 2014
  • 5.1% in 2015

Unemployment is forecast to be at:

  • 7.7% in 2013
  • 7.5% in 2014
  • 7.3% in 2015.

Unemployment rates will go down slowly as employees work longer hours and productivity recovers.

This slow decline in unemployment is likely to keep interest rates on hold through to the end of 2015.

CBI Director of Economics, Stephen Gifford, said:

“Consumer spending will rise, underpinned by increased confidence, improved credit conditions and a gradual pick-up in real incomes.”

“But risks remain, despite the relatively stable global environment of the past year, with financial markets moving to a new regulatory environment, the Eurozone continuing to evolve, emerging markets facing structural change and the challenge of unwinding unconventional monetary policies.”

On October 4th Market Business News reported that the UK economy was growing at its fasted rate in sixteen years.