The CBI has cut its UK growth forecasts but says the UK economy is ‘on a firm footing’, although it is warning of ‘headwinds to recovery’ coming from the eurozone
The business lobby group’s latest economic forecast predicts 2.4% growth for 2015 and 2.5% in 2016, down from February’s forecast of 2.7% and 2.6%.
The CBI says this is largely due to weaker than expected official GDP data for the first quarter of 2015, which it describes as ‘a temporary blip’.
Following first quarter growth of 0.3%, the CBI predicts a strong rebound in the coming months with quarter-on-quarter growth of 0.8% in Q2, 0.7% in Q3 and 0.6% in Q4.
However, despite growth prospects looking healthy at home, the CBI report warns that ‘there are headwinds to the recovery, with a still sluggish Eurozone and renewed uncertainty over Greece’s economic future’.
John Cridland, CBI director-general, said: ‘The recovery has built up a good head of steam and we expect to see solid, steady and sustainable growth carrying through into next year. Our members are feeling more upbeat than some of the recent official numbers suggest, with our surveys showing that retail and the service sectors in particular are performing strongly.’
However, Cridland also noted uncertainty over Britain’s future in Europe, saying that ‘clearly the EU referendum is a hot topic in Britain’s boardrooms. Businesses now have certainty that the referendum is happening, but not the outcome.’
Separately, BDO’s latest Business Trends report shows Britain’s manufacturing firms reported the biggest decline in optimism this month since March 2013, with a four-point decline in its index measure.
The firm says exporters have been particularly hard-hit as the continued slow performance of the Eurozone hits overseas markets and the strong pound makes British goods more expensive. Added to this low oil and gas prices have curbed investment by the sector, and slowed orders for manufacturing firms.
Peter Hemington, BDO partner, said: ‘The government’s plans to rebalance the economy are vital, but it is equally vital that the manufacturing sector reaps the benefits from these plans and receives the help it needs to thrive. In particular, we need to see the Northern Powerhouse plan translate into real support for the manufacturing sector.
‘Manufacturing is a key sector for economic growth, so specific support could help boost the economy as a whole. A measure such as a reducing National Insurance for manufacturers taking on new employees could create up to 90,000 jobs each year, and boost GDP by over £3.5bn.’
