The UK’s economy is on a “firm footing” after growing faster than predicted in 2014 according to CBI forecast.
Britain’s economy has nothing to worry about, despite a slight downgrade in recent growth forecasts. In fact, the UK’s economy is on a “firm footing” after growth in 2014 surpassed expectations. Predictions point towards solid, steady and sustainable growth in 2016, according to the Confederation of British Industry (CBI).
The CBI’s latest economic forecast suggests that the economy will grow by 2.4% in 2015 and 2.5% in 2016, which is slightly lower than February’s forecasts of 2.7% and 2.6%, respectively. However, the downgrades are the result of weaker than expected official GDP data in the first three months of this year, which the CBI brush off as a “temporary blip”.
Solid, steady and sustainable growth
“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,” said John Cridland, CBI director-general.
“Our members are feeling more upbeat than some of the recent official numbers suggest, with our surveys showing that the retail and service sectors in particular are performing strongly.”
Britain’s leading business group suggests that the first quarter’s lacklustre growth of 0.3% will be followed by a strong rebound, with quarter-on-quarter growth of 0.8% in the second quarter. In the following months the economy should sustain these levels, with the group predicting a growth of 0.7% in Q3 and 0.6% in Q4.
A number of factors will continue to boost the economy. The CBI notes that inflation will remain below 1% throughout 2015, but will begin rising later in the year as the effects of the sharp drop in oil and food prices continue to unwind. Average inflation for 2015 is predicted to be 0.2% this year and 1.6% next year.
Average earnings expected to grow faster than inflation
This should provide a boost to real incomes and support consumer spending, especially as average earnings is expected to grow faster than inflation at 2% and 2.4% in this year and the next, respectively.
“The UK is up among the lead runners in the pack of G7 economies. While we are seeing a strong domestic picture, cracking the productivity conundrum would really help cement the recovery,” said Rain Newton-Smith, CBI director of economics.
However, the CBI notes that headwinds to recovery come from the Eurozone while uncertainty over Greece’s economic future remains.
“Recent talks over Greece underline the need for a decision on extending bailout financing,” explained Ms Newton-Smith. “Meanwhile, weaker US growth and the slowdown in China, coupled with the strength of Sterling against the Euro, are acting as a drag on exports.”
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