CBI predicts ‘tepid’ UK growth in coming years

FORECAST: Pressure on household spending expected to continue next year

UK economic growth is expected to stay steady but subdued over the next couple of years, according to the latest CBI economic forecast.

The tepid growth is to continue with the group forecasting GDP will grow at a rate of 1.5% for this year, 1.5% in 2018 and 1.3% in 2019.

The CBI expects quarterly GDP growth of a subdued 0.3% up to the end of 2019 – unchanged from June and almost half the average rate of growth seen since 2013.

Rain Newton-Smith, CBI chief economist, said: “After a timid 2017, UK economic growth is set to remain steady but sluggish, with less pep than we’ve seen over the past few years.

“We expect domestic demand to remain soft. Household spending will remain under pressure from squeezed real wages and Brexit uncertainty will weigh on business investment.

“But encouragingly, we should see more support from net exports, buoyed by the lower pound and a resurgent global economy.

“The lacklustre rates of growth that we’re expecting come against the backdrop of several years of persistently weak productivity, which is pushing down on the UK’s supply potential.

“The Government’s newlyannounced industrial strategy can help address this challenge and boost living standards. But the recent White Paper is just a first step – consistency and determination is needed to make this a long-lasting success.”

Following the Bank of England interest rate rise in November, the CBI expects a further three rate rises, each of 25 basis points, over this forecast – in Q3 2018 and in Q2 and Q3 2019 – taking the rate to 1.25%.

The CBI forecasts think inflation will have peaked at 3% in October this year and thereafter expects it to ease gradually, though above the monetary policy committee’s 2% target. With only a lukewarm pick-up in wage growth expected, living standards are set to stay under pressure.

The global economy has been growing strongly and the CBI expects its momentum to remain solid, providing a supportive backdrop for economic growth in the UK.

The CBI expects the global economy to grow by 3.6% in 2017, 3.7% in 2018 and 3.4% in 2019. The CBI has upgraded its forecast for eurozone growth in particular, with the recovery across several countries having picked up pace.

The group said the UK outlook remains subject to a high degree of downside risk – particularly in 2019, when a disorderly outcome from Brexit negotiations could disrupt the economy.

CBI principal economist Alpesh Paleja said: “The global economy is firing on all cylinders, with the upturn in growth becoming more broad-based. We expect this to continue in the nearterm.”

CBI chief economist Rain Newton-Smith.