News Column

CBI Lifts U.K GDP Outlook; Sees First Rate Hike In Q1 2015

May 12, 2014

LONDON (Alliance News) - The Confederation of British Industry on Monday upgraded UK economic outlook as the recovery continues to take hold and brought forward the estimated date of interest rate hike to the first quarter of 2015.

The business lobby forecast 3% economic growth this year, up from the prior estimate of 2.6%. Likewise, growth for 2015 was lifted to 2.7% from 2.5%.

"Prospects are bright and we expect the recovery to broaden out this year, with greater support from business investment in particular," John Cridland, CBI Director-General, said. The CBI estimates 8.3% rise in business investment this year and 9.1% in 2015.

However, momentum in household spending should fade somewhat later this year as improvements in consumer confidence are unlikely to improve at the same pace, it said. The lobby projects 2.4% rise in consumer spending in this year and next.

While exports growth is expected to pick-up, this is likely to be partially offset by accelerating imports growth, as domestic demand strengthens. As a result, the contribution to growth from net trade will remain muted.

Following upward revisions to GDP growth, the CBI expects the Bank of England to raise key rates by 25 basis points in the first quarter of 2015.

The CBI expects unemployment to average 6.8% this year and to have fallen to 6.2% by the end of 2015.

The lobby expects consumer price inflation to average 1.8% in 2014 and to remain close to 2% in 2015. Near-term inflationary pressures appear to be muted. Further, the appreciation in sterling is also likely to push down on import prices, which should gradually feed through to consumer prices, it said.

On housing, the CBI said transactions are picking up firmly. House price inflation is expected to rise to 8.2% this year from 3.6% in 2013. In 2015, house price growth is seen at 5.1%.

The CBI said political uncertainty remains a major risk to the recovery. The lobby urged politicians to stick with what is 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 that are taken with a long-term strategic view and avoiding damaging market interventions.

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Source: Alliance News

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