CBI upgrades UK growth forecast as prices drop

THE Confederation of British Industries (CBI) business lobby group has upgraded its forecast for the UK’s economic growth this year.

The CBI now expects the UK economy to expand by 2.7% in 2015, compared with its November forecast of 2.5%.

It credited a combination of low inflation and improvements in employment for the increase.

However, it warned that “volatility” in the eurozone, including Greece and Ukraine, was a risk to growth.

The CBI said increased household spending, thanks in part to low inflation boosting pay, as well as wage growth finally picking up would help to drive growth.

It also forecast a 5.8% increase in business investment.

It said firms had more to spend because the sharp drop in oil prices had helped to lower their operating costs leaving more space for investment, but said North Sea companies had been hurt by the drop.

“While lower oil prices are keeping costs down for businesses and consumers, the North Sea oil companies are suffering, harming jobs and investment in the industry, said Katja Hall, CBI deputy director-general.

“Now is not the time for complacency, but falling unemployment coupled with improving wage growth and rock bottom inflation should mean that people see more money in their pockets,” she added.

Growth is also likely be helped by lower interest rates, said the report. Markets are currently expecting an interest rate rise in early 2016.

Gross domestic product (GDP), which includes all the services and goods produced in a year, grew by 2.6% in 2014 – faster than other European economies but falling short of earlier expectations.

The CBI expects oil to remain below $65 per barrel in 2015 and it expects consumer price inflation to remain below 1%.

A Treasury spokesman said: “This is welcome news for households and families, but the job is not yet done so we must keep working through the plan that is delivering economic security in an uncertain world economy.”