The UK economy is expected to continue to grow – but at a slower rate – through 2016 and 2017, according to the latest CBI economic forecast.
It claims that signs of economic risks, including uncertainty ahead of the EU referendum, are starting to weigh on investment plans.
The leading business group’s latest quarterly forecast predicts that the UK will see 2% GDP growth in both 2016 and 2017, both of which are downgrades from its last forecast in February (2016 – 2.3%, 2017 – 2.1%).
Growth is again expected to be driven by household spending and investment, but the deterioration in the global economic outlook, including weaker prospects for China and other emerging markets, continue to represent major challenges.
The economy saw a softer than expected start to the year, which has contributed to a large part of the downgrade in GDP growth in 2016. There are also signs that uncertainty over the outcome of the EU referendum is having a tangible impact on the spending plans of some firms.
The CBI’s central economic forecast was carried out on the basis of our current membership of the European Union.
Carolyn Fairbairn, CBI Director-General, said: “We expect the UK’s growth path to continue but it is likely to be at a slower rate than previously thought. A dark cloud of uncertainty is looming over global growth, particularly around weakening emerging markets and the outcome of the EU referendum, which is chilling some firms’ plans to invest. At present, the economic signals are mixed – we are in an unusually uncertain period.”
The CBI believes that the timing of a first rise in interest rates will now be in the second quarter of 2017 (rising to 0.75%) against the backdrop of slower growth.
Investment spending is expected to ease in the near-term, amid some signs that referendum uncertainty is bearing down on plans for capital spending.
However, a recovery in investment is expected in the second half of 2016, such that business investment remains a key support to GDP growth over the forecast period, accounting for around a quarter of growth in 2016, and a third in 2017.
Rain Newton-Smith, CBI Economics Director, said: “With GDP growth softening and commodity prices still low, inflationary pressures remain muted. Referendum uncertainty also appears to be dampening some activity in the near-term, and so put altogether, we do not now expect to see a rise in interest rates before 2017.
“On the global front, momentum is tepid and the picture for some emerging markets remains weak. Growth among the Asian giants is likely to continue to outperform more advanced economies, but financial fragilities in China are still raising concerns.”