UK GDP growth forecast increased to 2.6% as CBI sees improved domestic demand

Lobby group lifts growth forecast but sounds warning on strong pound

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The Independent Online

The CBI has upgraded its GDP growth forecast for this year to 2.6 per cent, pointing to a stronger uplift in productivity, robust household spending and decent business investment prospects.

The business lobby group’s forecast, published today, is up from the 2.4 per cent expansion it expected in June. It has also increased its forecast for growth in 2016 to 2.8 per cent, up from 2.5 per cent previously.

“Strong domestic demand and upbeat official data since our last forecast has boosted our outlook for 2015,” said Rain Newton-Smith, the CBI’s director of economics. “We expect this strength to continue into next year.”

Despite the upgrade the CBI’s 2015 GDP growth forecast is still below the 2.8 per cent expected by the Bank of England. It is, however, in line with other private sector forecasts, as collected by the Treasury. And it is now higher than the 2.4 per cent forecast by the Office for Budget Responsibility in the Budget last month.

The CBI said business investment is likely to “remain healthy” and said its surveys were pointing to robust plans for capital spending by firms for the months ahead.

It sees total business spending rising by 6.2 per cent this year, with manufacturing fixed investment jumping to a 12.6 per cent expansion.

However, the CBI added that it expected all the growth in 2015 to come from domestic demand, with the rest of the world’s economy giving no fillip to net exports and the rising currency dampening activity.

“The strong pound is hampering our competitiveness abroad and growth in the eurozone, our biggest trading partner, will remain subdued for the foreseeable future, particularly given renewed uncertainty,” said John Cridland, the CBI’s outgoing director general.

Mr Cridland will be replaced by Carolyn Fairbairn, a former member of the Number 10 Policy Unit, in November.

The latest estimate from the Office for National Statistics is that the economy grew by 0.7 per cent in the second quarter of the year, after an identical expansion in the first three months. The ONS estimates that the economy grew by 3 per cent last year, the strongest full year of growth since 2006.

A separate survey from the EEF manufacturers’ group, also published today, echoes the CBI’s downbeat assessment of the export outlook. Its annual EEF/Vodafone Innovation Monitor shows that two-thirds of manufacturing companies said efforts to move into new export markets had been unsuccessful.

It also found that only half of companies are using innovation to expand into new export markets, while 40 per cent of manufacturers lack the resources they need to do so.