Economic forecast revised up

The Confederation of British Industry (CBI) has revised its forecast for the UK economy up to 2.7 per cent for 2015 from a prediction of 2.5 per cent in November, mainly due to a combination of low inflation and improvements in employment.

According to the business lobby group, the sharp drop in oil prices has been helping to lower firms’ operating costs, which will leave more space for investment but it warned that volatility in the Eurozone was a risk to growth, as the fall in net trade will mean lack of growth over the next two years.

However, the group also forecast an increase in business investment of 5.8 per cent this year and by a projected 6.5 per cent next year. Meanwhile, it believes that gross domestic product (GDP) will continue on a steady upward trend through the rest of 2015, rising by 0.7 per cent per quarter.

Oil prices will remain low, the CBI predicts, which is in turn expected to keep consumer price inflation low, which will mean that people will be spending more and individuals will earn more, with wage growth of 3 per cent expected by the last quarter of 2016.

A spokeswoman for the CBI said that while UK growth continues to outperform its counterparts in Europe, this is not a time for complacency, as uncertainty continues in the Eurozone, particularly in Greece and the Ukraine, so businesses are anxious about external factors that could disrupt their growth plans.

However, on a more positive note, falling unemployment coupled with improved wage growth and extremely low inflation should mean that people have more money in their pockets to spend, which will in turn boost business growth.