Revised forecast

CBI now expects growth and two more rate rises

Container ship KC Liner
Economy setting sail for growth

Britain’s economy is set to steer clear of a recession after faring better than expected in the first half of the year, says the CBI.

It is forecasting 0.4% growth in GDP over 2023 against an earlier expectation that the economy would shrink by 0.4%. It is due to grow by 1.8% in 2024 rather than 1.6% in its earlier analysis in December.

The CBI notes that the global outlook has improved and wholesale energy prices have fallen. It says inflation should ease further through the course of this year, particularly as global price pressures are expected to wane. 

In particular, food price inflation is set to fall substantially (averaging 15.5% in 2023 and 4.4% in 2024), following a surge in March 2023 (to 19.1%).

However, risks to the inflation forecast remain on the upside, with domestic price pressures stubbornly strong, particularly wage growth and services inflation. 

“We expect the Bank of England to raise interest rates twice further, bringing them to 5% in August and to remain alert to the potential for financial market stress,” says the CBI.

Rain Newton-Smith, CBI director general, said: “Businesses and consumers alike will be relieved that the UK economy has avoided recession and will re-enter growth territory in the second half of this year. But firms want to see growth – and productivity – pick up pace. We want to see the UK at the top of the global league tables once again.  

“So, it’s crucial to create a business environment that gives firms greater confidence to invest and decarbonise. Providing consistency and clarity to the principles underpinning our business tax system will boost the ambitions of UK plc.   

“We need to make sure the UK gets behind green growth. We don’t have a second to lose, as firms clearly have a will to invest in green technologies and decarbonisation.

“There are major export markets to be won – and we have a huge opportunity to secure significant investment from abroad, strengthening the UK’s economic prospects.”

KPMG also no longer expects a recession in the UK this year, forecasting that gross domestic product will rise by 0.3%.

It is forecasting a 1.1% rise next year, a more modest increase than the CBI.

Yael Selfin, chief economist at KPMG UK, said: “We’ve seen a slightly stronger momentum for the UK economy but risks are still elevated on the downside.

“A stickier inflation will see monetary policy tightening even further, increasing the risk of unwelcome side effects among other potential headwinds.”

Scotland’s private sector has “lost momentum” as output weakens and concerns remain over rampant inflation, research by Royal Bank of Scotland has found.

Steady growth between February and April was followed by a noticeable weakening across many of the categories monitored in the bank’s Purchasing Managers’ Index (PMI) for last month.

Judith Cruickshank, the chairwoman of the Scotland board at RBS, said: “Scotland’s private sector started the second quarter with a solid rise in output in April but May’s data signal a loss of momentum as services growth slowed and manufacturing output fell for the first time in four months.”

The pace of the upturn in employment in Scotland was the quickest of all the 12 nations and regions monitored in the PMI. 

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