CBI predicts firm UK economic growth, despite global challenges

Posted on 11 Feb 2016 by Jonny Williamson

UK economic growth is expected to remain solid with sound domestic demand, despite slower global momentum and financial market volatility, according to the CBI’s latest economic forecast.

The leading business group’s latest quarterly forecast predicts that the UK will remain among the fastest growing advanced economies this year, although the CBI has downgraded its GDP growth forecast for both 2016 (to 2.3%, from 2.6% in November) and 2017 (to 2.1%, down from 2.4%).

The modest adjustments for 2016 were driven chiefly by revisions to historical data, which show that momentum in the economy over 2015 was slightly less than previously thought.

Weak productivity and wage growth, leading to a slower rise household spending, were also highlighted as contributing factors.

But while the global economic outlook is weaker, particularly given concerns over China and its effect on emerging markets, the UK’s direct exposure is limited.

Crop - Carolyn Fairbairn, Director General, CBI
Carolyn Fairbairn, director general, CBI.

CBI director-general, Carolyn Fairbairn commented: “The UK is likely to remain among the fastest growing advanced economies with strong fundamentals, though our forecast recognises growing overseas risks.

“While there’s little current evidence of uncertainty negatively affecting business investment ahead of the EU Referendum, this is a potential risk to the UK’s solid economic outlook, along with concerns over China and emerging markets.

“And despite domestic demand remaining healthy, it’s clear that increasing productivity remains a priority as a means of achieving sustainable wage growth.

“Overall, the UK economy is expected to see decent growth this year and in the next. It’s important to keep global economic challenges, such as recent stock market volatility, in perspective.”

While the UK’s labour market has been growing strongly, the CBI noted that pay and productivity growth had been disappointing.

The CBI also expects a larger drag in 2016 on growth from net trade (-0.5%) relative to November (-0.3%); due to stronger import growth in its forecast, largely driven by revisions to historical data.

Rain Newton-Smith, director of Economics, CBI
Rain Newton-Smith, director of Economics, CBI

CBI director of economics, Rain Newton-Smith said: “It’s important to remember is that the UK has largely remained resilient amid recent global turbulence.

“We have a sound economic footing at home, driven by strong job creation and business investment coupled with low inflation supporting household spending.

“But with softer GDP growth and slower wage growth tempering inflationary pressures, UK interest rates are likely to remain unchanged until the end of this year.

“Our view on the global economy remains largely unchanged: India is a beacon among emerging markets, with growth likely to remain around 7% in 2016 and 2017, outpacing China [5.7% in both 2016 and 2017].

“Both the elephant and the dragon will make a large contribution to global growth in the years ahead. However, some emerging markets remain vulnerable to low commodity prices, large debt overhangs and capital outflows.”