Monday, August 24, 2015

Productivity and Growth: CBI upgrades forecasts

The good news is that the CBI has upgraded UK growth forecasts: the really good news is that one of the main reasons for the upgrade is that, at long last, they see signs of improving productivity.

The CBI now predicts growth of 2.6% this year and 2.8% next year, up from its June forecast of 2.4% and 2.5% respectively.

Increased household spending and "robust" investment growth will drive the improved growth, the CBI believes. They are assuming that interest rates will rise in the first quarter of next year, having previously assumed that rates would begin rising from their historic low of 0.5% from the start of April next year.
But it now says the improved growth picture alongside "more hawkish" comments from the Bank of England's rate-setting Monetary Policy Committee had prompted it to bring its prediction forward.

"We now expect interest rates to rise to 0.75% in the first quarter of 2016, and then rise at a slow pace thereafter," the CBI said. On this basis they projected growth to continue until the end of next year at a similar pace to the three months to the end of June, averaging 0.7% a quarter.

Household spending and business investment would remain the two key factors driving growth next year, the CBI added and that improved productivity had also helped to boost wage growth. This, combined with low inflation, largely due to the drop in commodity prices, meant households had more to spend.

"Strong domestic demand and upbeat official data since our last forecast has boosted our outlook for 2015. We expect this strength to continue into next year," said CBI director for economics Rain Newton-Smith.

The UK economy has exhibited slow productivity growth for a decade or more, so the signs of improving productivity are particularly welcome.

More details at the BBC website here.

1 comment:

Jim said...

Perhaps those watching interest rates will join the pollsters then.