The Confederation of British Industry (CBI) has upped its growth forecast for the British economy in 2014. It now expects the U.K. economy to expand by 3 percent this year and by 2.7 percent in 2015, up from previous expectations of 2.6 percent and 2.5 percent respectively. The group also said it expected interest rates to start rising in the first quarter of 2015.
According to their report the UK economy performed strongly in the first quarter of 2014, growing by 0.8%, maintaining a similar pace of momentum to that seen over much of last year.
Prospects look bright for the quarter ahead, with The CBI’s growth indicator brings together CBI surveys of economic activity into an aggregate index and is pointing towards solid growth in the quarter to April and an exceptionally strong outlook for the next 3 months further ahead.
On the whole, the recovery appears to be advancing steadily; in particular, they expect increased support from business investment, both in this year and the next. Nevertheless, while it is expected exports growth are to increase, it is likely to be partially distracted by accelerating imports growth, as domestic demand strengthens. As a result, the contribution to growth from net trade will remain muted.
John Cridland, CBI Director-General, said: “The UK now has more stable economic foundations, and political issues should hold this to the highest level. The recovery is advancing after a strong performance in the first quarter of 2014. Prospects are bright and we expect the recovery to broaden out this year, with greater support from business investment in particular.”
Business investment has remained low since the onset of the recession in 2008 and despite four consecutive quarters of growth in 2013, is still 19 percent below its pre-recession peak.
The CBI business surveys have shown that demand uncertainty has been a key factor weighing on firms’ investment plans in recent years. However, recent survey data suggests that demand uncertainty has been falling and business confidence improving.
Given the positive indications from the survey data, it is expected that business investment aims to support growth to a greater extent in 2014 and 2015.
In addition, the extension of the Annual Investment Allowance announced in the March Budget is likely to lead to some investment being brought forward into 2014 and 2015.
Nevertheless, despite this predicted increase, it will remain 4% below its pre-recession peak by the end of 2015, reflecting the sheer scale of the issues seen during over the global financial recession.
Trade data for 2013 has been lower than expected, with exports rising by 2.8 percent in 2013’s fourth quarter after a decrease of 1.9 percent in the third quarter. The latest economic survey data looks promising with new export orders growth resuming at the strongest pace in three years.
In addition to this, there is optimism about export prospects improving considerably. The CBI expect the UK’s export performance to strengthen as global growth picks up, however, it is likely that the slow recovery expected in the Euro area will act as a restraint on UK export growth, as the UK rebalances based on other export markets.
In March, CPI inflation fell back to 1.6 percent, which is the lowest its been since October 2009 and has been below the Bank of England’s 2% target for three months running.
It is expected that CPI inflation will average 1.8 percent in 2014 and to remain close to 2 percent in 2015. Short-term potential issues have appeared to have stopped as several supermarkets have announced plans to cut food prices, and there have been a number of announcements by the ‘Big 6’ energy companies to not raise prices in 2014.
The CBI believes businesses must be at the heart of delivering prosperity for all, and ahead of the 2015 general election they have outlined three headline areas, which it’s stating political parties should take into account as they develop manifesto policies.
Firstly they recommend sticking with what’s working from this parliament and making sure it runs smoothly. In addition to this tackling the UK’s long-term economic challenges, making the major financial decisions necessary. The last point they suggested was to ensure policies make the right kind of difference, putting investment and opportunity first.
What would you introduce to help the economy grow and take advantage of a recovering global market?