Economic outlook gives CBI cause for optimism

Optimism about performance across services, construction and manufacturing has added to hopes that recovery is gathering pace

Better results in manufacturing are needed
Optimism about performance in manufacturing is adding to hopes

THE CBI has lifted its forecast for economic growth for this year from 1% to 1.2% amid signs of a pick-up in business confidence.

Optimism about performance across the services, construction and manufacturing sectors has added to hopes that the recovery is gathering pace after 0.6% growth in the second quarter.

The CBI, which represents 240,000 UK businesses, has also increased its forecast growth for 2014, from 2% to 2.3%, predicting that increasing disposable income and business and housing investment will boost demand.

However, the body warns that a hoped-for rebalancing of the economy to become less reliant on consumer spending and more focused on investment and trade is taking longer than expected.

Its upgrade comes after figures last week showed that the eurozone, Britain’s biggest trading partner, had emerged from recession.

The CBI says improvements in Europe together with a broader global recovery will give a positive boost to exports. However, a recovering domestic situation should also mean more imports so the trade contribution will remain small, it warns.

Meanwhile, the organisation says that the Bank of England’s recently-announced ‘forward guidance’ policy – designed to provide reassurance that interest rates will remain low for some time to come – will add to positive sentiment.

CBI director-general John Cridland said: “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, 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.”

He urged the Government to ‘get behind talented UK businesses’ to help them break into new export markets around the globe.

The CBI predicts a slow strengthening of household spending in the second half of this year and through the next, with better credit conditions.

Better spending power should be supported by a fall-back in inflation, a rise in disposable income and a stable labour market, it forecasts.

Business investment, set to fall 2.8% this year, should grow by 7.3% in 2014, the organisation said, with export growth of 0.7% rising to 4.9% – though imports are also expected to go up, from a negative 0.3% this year to a rise of 4.4%.

Unemployment is likely to remain ‘relatively sticky’ over the medium term, falling from 7.8% in 2013 to 7.6% in 2014.

The economy has started to gain momentum and confidence is picking up, but it’s still early days

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