CBI Upgrades U.K. GDP Forecast

(RTTNews) - The Confederation of British Industry upgraded its growth estimates for 2015 against a backdrop of lower oil prices and inflation.

The business lobby forecast 2.7 percent expansion for 2015, up from 2.5 percent projected in November. The estimates reflect the likelihood that the Bank of England will not raise interest rates until early next year, helping the economy to grow 2.6 percent in 2016.

The growth rate of 0.7 percent is expected for each quarter this year and 0.6 percent in 2016.

On the back of lower oil prices, consumer price inflation is expected to stay below 1 percent throughout most of 2015.

While the risk of deflation is growing, the CBI does not see a sustained period of widespread falling prices as likely, with the downward pressure from the oil price effect unwinding over time.

Business investment is expected to continue providing sturdy support to GDP growth, rising by 5.8 percent this year and by 6.5 percent in 2016, it said.

The business lobby expects some improvement ahead in exports, with growth increasing from 2.9 percent this year to 5.5 percent in 2016.

Nonetheless, with import growth set to rise firmly due to strong domestic demand, the net trade contribution to GDP growth will be small at best, CBI noted.

Further, the unemployment rate is expected to continue its downward trend in 2015 and into next year, leveling off at 5.2 percent, while wage growth is expected to reach 3 percent by fourth quarter of 2016.

"Now is not the time for complacency, but falling unemployment coupled with improving wage growth and rock bottom inflation should mean that people see more money in their pockets," Katja Hall, CBI Deputy Director-General said.

"But businesses are looking on anxiously as insecurity continues to troll the Eurozone and instability remains elsewhere," said Hall.