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CBI upgrades UK growth forecast

Article By: ,  Financial Analyst
February 16, 2015 1:26 PM

Growth in the UK is set to increase in the coming year, according to business lobby group the Confederation of British Industries (CBI).

The group has a revision in economic growth forecast and now expect the UK's economy to expand by 2.7 per cent in 2015. It was up from the 2.5 per cent growth announced in November. The CBI highlighted a combination of low inflation and improvement in employment as being the key reasons behind the upgrade.

Despite the optimism there was caution as the CBI warned that political volatility, both domestic and foreign, could impact on the UK's economic performance in the coming months. There has been concern over the future of Greece after anti-austerity party Syriza won the general election.

Talks about a possible Greek exit from the eurozone which would cause shockwaves across the region have been ongoing. Instability continues in Ukraine but there is tentative optimism following the announcement of a ceasefire between the Ukrainian army and rebels fighting in the east of the country.

The UK could also be facing major change as it holds a general election in May.

Katja Hall, CBI deputy director-general, said: "Now is not the time for complacency, but falling unemployment coupled with improving wage growth and rock bottom inflation should mean that people see more money in their pockets.

"But businesses are looking on anxiously as insecurity continues to troll the Eurozone and instability remains elsewhere."

Low inflation and low interest rates

The UK's inflation rate took a sharp decline during December which official figures showing that the Consumer Prices Index (CPI) had fallen to 0.5 per cent. A fall below one per cent requires the Bank of England governor Mark Carney to write a letter of explanation to the chancellor. It also means that the Bank is over one percentage point away from its two per cent.

December's drop in inflation has meant that interest rates could remain at their record low of 0.5 per cent a little longer.

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