Comment: Business chiefs bullish over economic growth

The CBI say llower oil prices and inflation will boost household spending power. Picture: PA
The CBI say llower oil prices and inflation will boost household spending power. Picture: PA
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BUSINESS leaders expect the economy to gather momentum over the summer, an influential survey out today reveals, providing a boost for the Tor­ies in the final countdown to Thursday’s general election.

The CBI’s latest growth indicator, taken from a survey of more than 750 companies, says British business believes the recovery momentum should “strengthen moderately” bet­ween now and the end of July.

However, the data is likely to be hotly contested by Labour, with UK manufacturing growth on Friday posting its sharpest slowdown in more than two years.

The latest CBI survey has a positive balance of business expectations for output growth of 23 per cent in the coming months.

That is a brighter picture, with the survey only recording a positive balance of businesses forecasting output growth of 19 per cent for the three months to April, 18 per cent for the three months to March, and 19 per cent to February.

“UK economic growth appears resilient,” Katja Hall, CBI deputy director-general, said.

“Our surveys and member feedback indicate prospects for 2015 as a whole remain bright, with lower oil prices and inflation boosting household spending power and helping businesses, aside from the hit taken by the North Sea oil industry.”

The survey is likely to be seized upon by the Conservative-led coalition government as evidence that its economic policies are working and the electorate should persevere with it by re-electing the party to office.

But Labour is likely to hit back that Friday’s shock numbers from financial data consultancy Markit showed its monthly purchasing managers index (PMI) for manufacturing – about 12 per cent of the economy – fell to a seven-month low of 51.9 last month.

This was from a downwardly revised 54 in March, the biggest one-month fall since February, 2013. The figure was still above the 50-mark that divides growth from contraction, but jolted the City as it cast doubt on the strength of the recovery.

The CBI’s deputy director-general also appears to admit the confusing signals in today’s survey. “Promisingly, there are early signs of stronger growth in the Eurozone, which should help UK exports,” Hall says.

“But the strengthening pound is undermining manufacturers’ competitiveness in the euro area, while uncertainty around the election seems to be knocking businesses’ investment plans.”

The spotlight will swing to other key data due out this week for signs of resilience or weakness in the economic rec­overy. On Tuesday there is the construction purchasing managers index for April, against the backdrop of some data having pointed to contraction in the sector.

Howard Archer, economist with IHS Global Insight, said surveys suggested at the least that “construction activity has come off the peak levels seen in 2014”. He forecasts that this week’s PMI for the sector will show that activity dipped to 57.3 in April, down from 57.8 in March and 60.1 in February – all ahead of the key 50 mark.

The services sector – roughly three-quarters of the economy – has its PMI survey for April this Wednesday, after the Office for National Statistics said recently the industry expanded 0.5 per cent in the first three months of 2015. Archer predicts the services business act­ivity index will have dipped to 58.5 in April from a seven-month high of 58.9 in March.

The UK’s trade deficit figures are out on Friday, a day after the general election, with the total trade gap expected to have narrowed to £2.2 billion in March after widening sharply to £2.9bn in February from £1.5bn in January.