UK growth forecasts have been raised

One of Britain’s top business groups, the Confederation of British Industry (CBI), has just raised its growth forecasts for 2013 and 2014.

The CBI predicts 2013 GDP growth of 1.2 percent, compared to 1.0 percent earlier this year.

The raised forecast comes following a good second quarter and increasing confidence in manufacturing, construction, and other sectors.

As a result of more disposable income and housing investment meeting domestic demand, the CBI predicts that the economy will grow at a faster pace in 2014.

The group forecasts 2014 GDP growth of 2.3 percent – up from 2.0 percent in May.

British exports are expected to boost because of:

However, at the same time experts predict imports will also grow, meaning that trade contribution to growth won’t be that significant.

Business and consumer confidence will also begin to revive thanks to the Bank of England reporting clearly defined guidance concerning its future conduct of monetary policy.

CBI Director-General,  John Cridland, stated:

“The economy has started to gain momentum and confidence is picking up, but it’s still early days. We need to see a full-blown rebalancing of our economy, with stronger business investment and trade before we can call a sustainable recovery. We hope that will begin to emerge next year, as the Eurozone starts growing again. The Government needs to get behind talented UK businesses to help them break into new export markets and sell great British products and services around the globe.”

Rebalancing in growth

During the next half of the year and through 2014 confidence will lift, credit conditions will improve, and total household spending is predicted to rise. As inflation falls back and disposable income increases overall spending power will improve.

Exports and business investments are also expected to improve as European market conditions recover.

  • Business investment is predicted to grow by 7.3% in 2014, from -2.8% in 2013
  • Export growth is expected to rise to 4.9% in 2014, from 0.7% in 2013
  • Import growth is expected to increase from -0.8% in 2013 to 4.4% in 2014

The CBI also forecasted:

“The unemployment rate will be 7.8% in 2013, falling to 7.6% in 2014. We expect unemployment to be relatively sticky over the medium-term, as hours worked increase and productivity begins to recover. Consequently, the CBI expects interest rates to remain on hold beyond 2014.”

CBI Director of Economics, Stephen Gifford, concluded:

“Increased confidence, improved credit conditions and a pick-up in disposable income should underpin consumer spending in the UK through 2014. As the Eurozone returns to growth and global momentum continues to build we should see a gradual increase in business investment and UK trade. But despite a relatively stable global environment over the last year, risks remain as financial markets move to a new regulatory environment and the Eurozone continues to evolve. Meanwhile, emerging markets are facing structural challenges, particularly as China rebalances towards domestic consumption, which indicates muted growth prospects.”