CBI cuts growth forecast as surveys point to slowdown

Rain Newton-Smith, director of economics at the CBI
Rain Newton-Smith, director of economics at the CBI
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THE CONFEDERATION of British Industry has cut its UK growth forecast for 2015 after a weak start to the year and warned that uncertainty around the EU referendum could pose further risks to the outlook for the economy.

Separate industry surveys for Yorkshire added to concerns that the economy is starting to slow down.

Growth in business activity in the region slowed to its weakest since March 2013 last month, according to a closely watched index of purchasing managers.

Manufacturing firms reported the biggest decline in optimism this month since March 2013, according to accountancy firm BDO.

Employers’ organisation the CBI expects gross domestic product (GDP) to expand by 2.4 per cent for the year, down from an earlier forecast of 2.7 per cent. Prospects for next year have also been cut, with an upturn of 2.5% pencilled in, down from 2.6 per cent.

The lobby group said the downgrades were largely due to weaker than expected official GDP data for the first quarter, which saw growth of just 0.3 per cent - the weakest since the end of 2012.

It described this as a “temporary blip” and predicts a strong rebound to 0.8 per cent in the second quarter.

But it said the in-out referendum on Europe promised by the Conservative Government - as well as the potential for a “messy” end to the Greek crisis - were potential threats to the recovery.

CBI director-general John Cridland said growth had built up “a good head of steam”, as businesses were seeing a “pretty solid recovery” with consumer spending underpinned by low inflation and interest rates and rising incomes.

But he added: “Risks remain in the form of economic instability in Greece and a sluggish eurozone, and clearly the EU referendum is a hot topic in Britain’s boardrooms.

“Businesses now have certainty that the referendum is happening, but not the outcome. However, most of our members are clear they want to remain in a reformed EU and will get behind an ambitious reform agenda.”

The CBI forecast said: “Risks to UK growth are tilted to the downside. A messy resolution of the Greek crisis could spark financial market and exchange rate volatility which could spill over into the real economy.

“And uncertainty ahead of the EU referendum raises the risk around our forecast of reduced sentiment and a delay in investment spending.”

The forecast also warned that weaker-than-expected growth in productivity - which is judged by measures such as output per hour - continued to pose a threat to lasting economic growth.

Rain Newton-Smith, CBI director of economics, said: “The UK is among the lead runners in the pack of G7 economies.

“While we are seeing a strong domestic picture, cracking the productivity conundrum would really help cement the recovery.”

The forecast cut comes after the Bank of England last month slashed its outlook for 2015 from 2.9 per cent to 2.5 per cent.

The latest Lloyds Bank Yorkshire and Humber PMI report out today said activity growth at private sector companies slowed to the weakest in over two years in May.

Employment growth has also slowed and cost pressures have re-emerged, according to the survey.

Exporters have been particularly hard hit by the slowdown in Europe and the strong pound makes British goods more expensive, said BDO.