Eurozone slump poised to impact UK exports

BRITAIN’S economic recovery has a firm foothold, but the “disappointing” export picture faces mounting economic uncertainty and political pressures in 2015, the CBI warns today.
John Cridland, director-general of the CBI. Picture: Toby WilliamsJohn Cridland, director-general of the CBI. Picture: Toby Williams
John Cridland, director-general of the CBI. Picture: Toby Williams

Ahead of its annual conference tomorrow in London, the employers’ group says in its latest economic forecast that exports are likely to have fallen 1 per cent in 2014 amid macro-economic sluggishness and geo-political tensions.

It contrasts starkly, the organisation notes, with a wider UK recovery that has been boosted by healthy business investment and consumer spending.

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John Cridland, director-general of the CBI, which represents some 200,000 businesses, said: “While the domestic picture is strong, the global backdrop is choppier.

“We are facing a heady mix of sluggish Eurozone growth, heightened tensions in Russia, Ukraine and the Middle East, and softening emerging markets, particularly in China, which could dent our export ambitions.”

The CBI said that various business surveys have shown that the fall in orders is particularly hitting British manufacturers.

“We are watching developments in the Eurozone and the global economy closely, as any further economic disappointments could present a serious risk to our export growth,” the forecast adds.

Rain Newton-Smith, the CBI director of economics, said that despite the otherwise “solid outlook” for the UK economy the global backdrop poses a “big risk”.

The report cuts the forecast for UK GDP growth in 2015 to 2.5 per cent from 2.7 per cent previously, and unveils a new CBI prediction that growth will stay at 2.5 per cent in 2016.

Despite the caveats on additional pressures on British exporters, the CBI believes that export growth will resume next year at 3.6 per cent, strengthening to 5.7 per cent in 2016. It says the outlook for UK inflation remains benign, and believes the first rise in interest rates from historic lows will now be delayed until the second quarter of 2015, compared with Q1 in its forecast last September.

Rates have been held by the Bank of England at 0.5 per cent since March 2009. The CBI predicts inflation will run at 1.5 per cent in 2014 and 2015 – below the official 2 per cent mid-term target.

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Cridland also says wage growth will gather pace next year, adding: “The recovery is on firm ground and is becoming ingrained. After a strong start to the year, we expect growth to get onto an even keel in 2015 and 2016.

“The service sector [about 75 per cent of GDP] has held up well and we’ve seen an encouraging pick-up in business investment, with firms looking to boost IT spending, while consumer spending is holding up as the UK economy continues to create jobs.”

The CBI says business investment recovered “sooner than expected”, standing at 3 per cent above its pre-crisis peak at the start of this year, and forecasts investment will have been robust in 2014 at 8.5 per cent.