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UK economy to see 8220 twin engined 8221 growth says CBI

Article By: ,  Financial Analyst
August 25, 2015 12:36 PM

A rise in household spending, paired with robust investment growth will help to boost the UK's economy and fuel "twin-engined" growth, according to the latest economic forecast from a leading business group. 

The Confederation of British Industry (CBI) is forecasting 2.6 per cent GDP growth for 2015 and 2.8 per cent in 2016. Those numbers have been upgraded from June forecasts of 2.4 per cent and 2.6 per cent respectively.

A combination of factors have led to the upgrade, including signs of recovering productivity in the first half of this year and stronger wage growth.

The CBI says that low inflation from falling commodity prices has led to a boost in household spending, and business investment is also likely to remain healthy, as surveys have indicated some big plans for capital spending. 

"Encouraged"

John Cridland, director general of the CBI, said: "We're encouraged by the twin-engined growth of household spending, spurred by stronger wage increases and low inflation, buttressed by business investment."

He added that there have been signs of productivity picking up, but warned that the outlook on exports is muted.

"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," he explained.

According to Rain Newton-Smith, CBI director for economics, strong domestic demand and upbeat official data has boosted the outlook for the rest of 2015. This strength is expected to continue into next year and government consumption will also provide a small uplift next year, she said.

Ms Newton-Smith said that businesses could face other pressures such as capacity constraints and skills shortages. She also predicts that the Bank of England's Monetary Policy Committee will announce the first interest rate increase during the first quarter of 2016.

"We've revised down our exports forecast for 2016, largely due to slower growth in China bearing down on global prospects, and a stronger Sterling," she added.

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