CBI warns leaders not to stifle investment while GDP grows

Posted on 12 May 2014 by Callum Bentley

Growth predicted to rise to 3.0% in 2014

The CBI is warning politicians of all shades to put incentivising business investment ahead of short-term electioneering.

The warning comes as the UK’s leading business group today upgraded its forecast for GDP growth as the recovery continues to take hold.

The group is forecasting GDP growth of 3.0% in 2014, up from the previous forecast of 2.6%, and 2.7% in 2015, up from 2.5%.

The economy grew by 0.8% in the first quarter of 2014 and quarter-on-quarter GDP growth of 0.7% is expected for the rest of this year and next.

Yet while economic signs are encouraging, the CBI said political uncertainty remains a major risk to the recovery. Setting out its headline priorities one year out from the general election, the CBI urged politicians to stick with what’s working and tackle the UK’s long-term economic challenges.

Among the measures the CBI is calling for, are committing to eliminate the budget deficit, scrapping the immigration target and raising the tier 2 visa cap, ensuring big infrastructure decisions are taken with a long-term strategic view and avoiding damaging market interventions.

John Cridland, CBI director-Ggeneral, said: “The UK now has more stable economic foundations, and political risks must not jeopardise this.

“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.

“Businesses recognise the realities of election time but want all parties to ensure their policies make a positive difference. Politicians must be wary of the risk of headline-grabbing policies that weaken investment, opportunity and jobs.”

While consumer spending largely drove the recovery in 2013, there are now encouraging signs of growth becoming more broad-based. Business investment is recovering, and in the final quarter of 2013 it was 8.7% above its level a year ago. Uncertainty over demand conditions has been falling and business confidence has been improving.

The CBI said it expects business investment growth of 8.3% this year and 9.1% next year.

However, net trade is unlikely to provide much support to GDP growth. While the UK’s export performance is expected to strengthen as global growth picks up, stronger domestic demand will boost imports. The CBI said it therefore expected to see only small support to growth from net trade in 2014 and 2015.

Katja Hall, CBI chief policy director, said: “We’re a year away from the general election and politicians must stick with what’s working. That means the new government, of whatever colour, keeping the deficit reduction strategy on track. It must also tackle the UK’s economic challenges and not duck the tough decisions, such as reforming public services.

“Political positioning must not be allowed to stifle investment, whether it’s an unrealistic immigration target, unjustified interventions into specific markets, flirting with leaving the European Union, delaying vital long-term infrastructure projects or restricting labour market flexibility.

“Pre-election pledges should not deter overseas and home-grown investors and entrepreneurs, nor limit a future government’s ability to deliver prosperity in the UK.”