CBI pushes back date of first interest rate hike in UK

An interest rate rise is now likelier to happen in the second quarter, the Confederation of British Industry (CBI) predicted on Monday.

The change from its earlier prediction that it would happen in the first quarter is due to the Monetary Policy Committee flagging concerns over the global economy.

That came as the business group presented its latest quarterly economic forecast, in which it predicted "solid" growth of 2.4% this year and 2.6% in 2016.

The figures had been downgraded from the 2.6% and 2.8% that it had predicted back in August, which it blamed on weaker investment growth and the global outlook. The group predicts growth of 2.4% in 2017.

"The UK economy’s continued strong performance is a clear sign of its resilience in the face of turbulent times overseas," CBI director-general John Cridland said.

"Manufacturers are enduring tougher conditions, as a persistently strong pound is hamstringing our export competitiveness, alongside dampened global growth. But our domestic story is strong and overall we are now in a phase of stable but solid economic growth."

He also said that businesses are prepared for what is set to be a limited and gradual rise in interest rates.

"Overall we must continue to put solid foundations in place to support the economy," he continued.

These include moving ahead with critical infrastructure decisions, maintaining flexibility in the labour market and allowing businesses from abroad that create jobs and boost the economy to enter the UK.

"Tackling these issues is just as important for businesses as securing reform in the European Union and is crucial for the UK to meet its global ambition in the face of stiff competition," he said.

The CBI also reported that while companies were continuing to hire, it had seen a slower pace of jobs growth ahead as productivity gradually increased, with the unemployment rate likely to level out in 2017 (at 5.1%).

While job creation will ease, it anticipates that stronger pay growth of 3.2% in 2016 will boost prospects for households. The business group also expects inflation to pick up from the end of the year, moving towards the Bank of England’s target of 2% from mid-2017 onwards.

Finally, it expects house price inflation to slow as interest rates increase, with house prices rising by 6.0% in 2015, slowing to 3.9% in 2016 and 3.5% in 2017.