CBI tims UK GDP forecasts for 2016 and 2017

Global economic risks and uncertainty ahead of the 23 June referendum on membership of the European Union were beginning to weigh on investment plans in the UK, leading the Confederation of British Industry to downgrade its forecasts for growth in 2016 and 2017.

The business lobby now pegged gross domestic product growth for 2016 and 2017 at 2.0%, down from previous estimates for an expansion of 2.3% and 2.1% - assuming the UK remained in the EU.

“We 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.

“At present, the economic signals are mixed – we are in an unusually uncertain period,” said CBI Director-General Carolyn Fairbairn.

Its downgrade to growth forecasts was largely the result of a softer start to the year, CBI said in a statement.

Spending by households and investment were seen driving the expansion, “but the deterioration in the global economic outlook, including weaker prospects for China and other emerging markets, continue to represent major challenges,” CBI said.

Nevertheless, consumption by households was expected to slow from 2.5% in 2016 to 1.5% in 2017, as higher inflation detracted from real income growth, with investment expected to take up the slack.

CBI also forecast a first 25 basis point hike in Bank Rate would come in the second quarter of 2017.

“With GDP growth softening and commodity prices still low, inflationary pressures remain muted. Referendum uncertainty also appears to be dampening some activity in the near-term, and so put altogether, we do not now expect to see a rise in interest rates before 2017.

“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,” CBI Economics Director Rain Newton-Smith said.