Slower growth in UK predicted as dark cloud of uncertainty looms says business group

With one month to go before UK citizens vote on the EU Referendum, the latest CBI economic forecast predicts the UK economy will continue to grow – but at a slower rate – through 2016 and 2017, and there are signs that global economic risks weighing on investment plans.

The leading business group’s latest quarterly forecast predicts that the UK will see 2.0% GDP growth in both 2016 and 2017, both of which are downgrades from its last forecast in February (2016 – 2.3%, 2017 – 2.1%).

The CBI’s central economic forecast was carried out on the basis of UK’s current membership of the European Union. 

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.

Carolyn Fairbairn, CBI Director-General, said while they 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.

The CBI which speaks on behalf of 190,000 businesses of all sizes and sectors in the UK, 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.  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 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.

“Once again, net trade is not expected to provide much support to growth. While the CBI expects a smaller drag in 2016 (-0.2ppts) relative to February (-0.5ppts), this mostly reflects a larger downgrade to import growth rather than much of a recovery in exports.”

According to the CBI, with offices includes the UK as well as representation in Brussels, Washington, Beijing and Delhi, growth in advanced economies around the world should continue at a steady, if subdued, pace over the next couple of years, with the forecast for US growth at 2.0% in 2016 (from 2.4% in 2015), rising to 2.3% next year. The recovery in the Eurozone should pick up a little further, with GDP growth at 1.6% in 2016 (from 1.5% in 2015). And while growth in China (6.5%) and India (7.4%) will outperform the advanced economies over the next two years, prospects for the rest of the emerging world remain weak and commodity exporters feel the hit from low prices.