The CBI has raised its UK growth forecasts for
2013 and 2014 as the recovery begins to gather some short-term momentum. But the
rebalancing away from consumption towards investment and trade is taking longer
The Confederation of British Industry, UK’s leading business lobby group, is
forecasting GDP growth of 1.2% in 2013, up from 1.0% in its May forecast, after
a better than expected second quarter and signs of a pick-up in confidence
across a broad range of sectors, including services, construction and
In 2014, the CBI expects the economy to gather
pace, forecasting 2.3% GDP growth up from 2.0% in May, as disposable income
increases and business and housing investment support domestic demand. A return
to growth in the Euro area and broader global recovery will give a positive
boost to exports, but imports will also grow as the UK’s domestic situation
improves, so the trade contribution to growth will remain small. The Bank of
England’s forward guidance should add to the recovery in business and consumer
John Cridland, CBI director-general,
said today: “The economy has started to gain momentum and confidence is picking
up, but it’s still early days.
“We need to see a full-blown rebalancing of our
economy, with stronger business investment and trade before we can call a
sustainable recovery. We hope that will begin to emerge next year, as the
Eurozone starts growing again.
“The Government needs to get behind talented UK
businesses to help them break into new export markets and sell great British
products and services around the globe.”
Modest rebalancing in growth expected:
The CBI says household spending is expected to slowly strengthen in the second
half of 2013 and through 2014, as confidence lifts and credit conditions
continue to improve. This will be increasingly supported by improving spending
power as inflation gradually falls back and disposable income picks up, against
the backdrop of a stable labour market.
Meanwhile, business investment and exports are
forecast to strengthen as the global economy picks up and the Eurozone returns
to growth, confidence rises, and credit conditions continue to improve. Business
investment is forecast to grow by 7.3% in 2014 from -2.8% in 2013. Export growth
is expected to increase from 0.7% in 2013 to 4.9% in 2014, but the net
contribution of trade to GDP growth will remain muted as domestic demand boosts
import growth from -0.8% in 2013 to 4.4% in 2014.
Interest rates on hold beyond 2014:
The CBI forecasts that the unemployment rate will be 7.8% in 2013, falling to
7.6% in 2014. It expects unemployment to be relatively sticky over the
medium-term, as hours worked increase and productivity begins to recover.
Consequently, the CBI expects interest rates to remain on hold beyond 2014.
The Bank of England promised earlier this month to hold interest rates at record
lows until this rate falls to 7%, which it does not expect to happen until
mid-2016. However, investors expect the first rate rise a year earlier.
Stephen Gifford, CBI director of
economics, said: “Increased confidence, improved
credit conditions and a pick-up in disposable income should underpin consumer
spending in the UK through 2014. As the Eurozone returns to growth and global
momentum continues to build we should see a gradual increase in business
investment and UK trade.
“But despite a relatively stable global
environment over the last year, risks remain as financial markets move to a new
regulatory environment and the Eurozone continues to evolve. Meanwhile, emerging
markets are facing structural challenges, particularly as China rebalances
towards domestic consumption, which indicates muted growth prospects.”
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