CBI says growth in UK economy poised to gather pace

Rain Newton-Smith CBI director of economics

Rain Newton-Smith CBI director of economics

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BRITAIN’S economy is expected to gather pace again this year after slowing from last summer’s peak, business leaders said today.

The upbeat forecast in the CBI’s latest survey adds credence to those still betting on a Bank of England rate hike this year, although policymakers are expected to sit on their hands at their March meeting on Thursday.

Today’s report shows slightly slower private sector expansion in the three months to February, but the rate of growth was still described as “strong” with a positive balance of 19 per cent. The overall outlook for the next quarter is positive, with growth expected to rise further.

It comes after official figures last week confirmed that UK GDP growth slowed to 0.5 per cent in the final quarter of 2014. February’s slightly weaker performance on the CBI scale – down from +23 per cent in January – was driven by slower sales growth in the retail sector, where volumes were broadly flat.

Meanwhile, manufacturing output picked up, with firms’ expectations for the coming three months hitting a five-month high.

Rain Newton-Smith, director of economics at the CBI, said: “The economy is heading steadily along the right track. The post-Christmas dip in retail sales was a surprise, but it’s encouraging that firms’ overall growth expectations are upbeat across all sectors. Lower oil prices mean consumers have a bit more money in their pockets after filling up at the pump, as well as reduced costs for firms.

“But the North Sea oil industry is being hit hard, so as an immediate step, the UK government should commit to reducing the supplementary charge [oilfield tax] to 20 per cent.”

Despite the upbeat readings, Newton-Smith said businesses would continue to keep a close eye on developments in the Eurozone, which is fending off deflation and a possible new crisis over Greece’s fiscal 
position.

The latest official figures showed that business investment declined by 1.4 per cent quarter-on-quarter in the three months to December driven by a sharp fall in spending by the oil and gas industry. Scott Corfe, head of UK macroeconomics at the Centre for Economics and Business Research, said low inflation and better wage growth should boost the consumer side of the UK economy this year, but investment could see “a year of two halves” as large firms await the outcome of May’s general election.

“The highly uncertain economic and geopolitical environments in Europe, Russia and the Middle East are also taking their toll on capital spending plans in the first half of 2015,” he said.

“A reduction in uncertainty, both at home and overseas, should lead to an acceleration in investment growth later this year.”

The BoE is also expected to hold off from raising interest rates until after the election, but economists are divided as to whether it will act this year or next.

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