Slowdown in UK economic growth was a 'blip', says CBI

The economy is picking up speed, despite the fact that GDP growth in the first three months of the year halved to 0.3%

The Prime Minister, David Cameron, addresses the CBI's annual conference (Peter Macdiarmid, Getty Images)

The recovery’s slowdown in the first quarter was a "temporary blip", the CBI argues today. According to the latest economic forecast from the business lobby group, the economy is picking up speed, despite the fact that GDP growth in the first three months of the year halved to 0.3 per cent.

The first quarter’s growth came as a serious disappointment, following the 0.6 per cent growth in the final three months of 2014. The expansion was also weaker than France’s 0.6 per cent growth and the European Union average of 0.4 per cent.

But the CBI expects second-quarter growth to bounce back to 0.8 per cent, and for full-year growth for 2015 to come in at 2.4 per cent, rising to 2.5 per cent in 2016. That represents only a slight downgrade on the 2.7 per cent and 2.6 per cent growth it predicted three months ago.

"The recovery has built up a good head of steam and we expect to see solid, steady and sustainable growth carrying through into next year," said the CBI’s director general, John Cridland. "Members are feeling more upbeat than recent official numbers suggest, with our surveys showing that retail and the service sectors in particular are performing strongly."

Construction was a drag on growth in the first quarter according to the Office for National Statistics. Net trade also pulled down GDP. The CBI said that exports were likely to pick up but that imports would also rise, meaning net trade is not likely to make much contribution to the recovery over the forecast horizon.

The CBI expects the UK will emerge from mild deflation in the third quarter, with low prices boosting real incomes and driving decent consumer spending.It thinks average wages will grow by 2 per cent in 2015 and 2.4 per cent next year in cash terms – although that would still be weak growth by historical standards. The unemployment rate is expected by the CBI to decline fall further to 5.3 per cent in 2016.

However, the latest Lloyds Bank England Wales Regional Purchasing Managers’ Index today shows the slowest rate of growth in two years in May. The index dropped to 55.9, down from the 58.5 recorded in April. It also reported “early signs of inflationary pressures”.

Yet Tim Hinton of Lloyds struck a positive note. “While there has been a slight slowdown in economic growth and a re-emergence of inflationary pressures, the overall outlook is strong for the UK” he said. “Businesses have good reasons have good reasons to remain confident and should continue to invest in their growth ambitions.”