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CBI upgrades GDP forecast but sends out a warning to politicians

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The business lobbying group, CBI, has today (Monday) upgraded its economic forecast for GDP (gross domestic product) growth however, it also issues a stark warning to politicians right across the board that they need to put incentivising business ahead of short-term electioneering. Whilst economic recovery in the UK continues to take hold and looks encouraging for the future the CBI claims that political uncertainty remains a major risk to the future of the economy.

Forecasting by the CBI, puts GDP growth in 2014 at 3.0%, a figure up from its former forecast of 2.6%, and 2.7% in 2015, up from 2.5%. The first quarter of 2014, saw the economy grow by 0.8% and for the rest of this year and 2015, quarter-on-quarter GDP growth is anticipated to increase at 0.7%.

Unveiling businesses’ priorities ahead of the general election in 2015, some of the measures being called for by the CBI are committing to eliminating the budget deficit, scrapping the immigration target and raising the tier 2 visa cap, ensuring big infrastructure decisions are taken with a long-term strategic view and avoiding damaging market interventions.

John Cridland, CBI director-general, said:

 “The recovery is advancing after a strong performance in the first quarter of 2014. Prospects are bright and we expect the recovery to broaden out this year, with greater support from business investment in particular.

“Politicians must be wary of the risk of headline-grabbing policies that weaken investment, opportunity and jobs.”

Katja Hall, CBI chief policy director, said:

“Political positioning must not be allowed to stifle investment, whether it’s an unrealistic immigration target, unjustified interventions into specific markets, flirting with leaving the European Union, delaying vital long-term infrastructure projects or restricting labour market flexibility.

“Pre-election pledges should not deter overseas and home-grown investors and entrepreneurs, nor limit a future government’s ability to deliver prosperity in the UK.”

Consumer spending:
Consumer spending in 2013, was according to the CBI one of the main key drivers of UK recovery, although for the future, the signs are indicating that growth is becoming more broad-based. Household spending shows indications of slowing towards the end of the year, as it is unlikely consumer confidence will continue at the pace seen. But a more solid footing in the future due to a recovery in real wages and productivity should according to the CBI, see consumer spending grow by an expected 2.4% overall this year and next.

Business investment:
Increases in business confidence according to the CBI, is a result of falling uncertainty over demand conditions which has lead to recovery in business investment. Expected business investment growth stands at 8.3% for 2014 and 9.1% in 2015.

Net trade:
The CBI is expecting to see only small support to GDP growth for this year and next from net trade, claiming that whilst the UK will strengthen its exports due to a pick-up on a global scale, imports will be boosted due to an increase in domestic demand.

Unemployment:
The CBI expects unemployment to average 6.8% (2.21 million) this year and to have fallen to 6.2% (2.02 million) by the end of 2015.

Interest rate:
Following the higher GDP growth forecast, the CBI is bringing forward its estimated date for an interest rate rise to the first quarter of 2015, forecasting the first 0.25 percentage point increase.

Housing:

Whilst housing transactions remain 29% below their 2006 pre-crisis peak, they are continuing to pick up and the UK has seen a steady increase in house prices. Houses prices in London have risen 25% above the 2008 peak, in part due to foreign cash buyers. The rest of the UK remains 2% below their pre-recession high.

House price inflation is anticipated to rise from 3.6% in 2013 to 8.2% this year and 5.1% next year.

Commenting on housing, Cridland, said:

“We have to remain alert to the risks posed by unsustainable house price inflation, and the Financial Policy Committee is poised to act when necessary.”

Believing that businesses must be at the centre of delivering prosperity for all, the CBI has outlined three main areas for all politicians to consider as they develop their manifesto policies ahead of the general election next year:

1. Stick with what’s working from this parliament – don’t create unnecessary uncertainty

  • Commit to a deficit reduction strategy that aims to eliminate the budget deficit and reduce national debt as a share of GDP
  • Protect our flexible labour market
  • Ensure the skills system best prepares people for work.

2. Tackle the UK’s long-term economic challenges – don’t duck the tough decisions

  • Commit to the recommendations of the Davies Commission on aviation capacity
  • Make a renewed push on housing supply to meet the urgent need for homes
  • Deliver renewed public service reform through better contract and market management.

3. Ensure policies make the right kind of difference – don’t put politics before investment and opportunity 

  • Scrap the unhelpful migration target and be prepared to raise the tier 2 skilled visa cap as the economy recovers, and consider expanding tier 1 for the most skilled individuals
  • Structure public spending around a growth focussed fiscal strategy
  • Improve the functioning of markets through setting a framework to encourage long-term investment and allowing the independent competition authority and economic regulators to do their job, free from political interference.

The CBI’s full set of proposals are due to be published later in the year.

About Sarah OBeirne

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