The CBI has upgraded its growth prediction for 2015 in its latest economic forecast against a backdrop of lower oil prices and inflation.
Job creation continues apace and wage growth is finally picking up. Coupled with low inflation, this will give a boost to real household incomes, going some way to improving living standards. Lower energy prices are also feeding through to lower operating costs for companies, leaving more space for investment.
The brighter picture for growth this year of 2.7% (from 2.5% expected in November) also reflects the likelihood that the MPC won’t raise interest rates until early next year, helping to support growth of 2.6% in 2016.
But political volatility, both domestic and foreign, continues as the UK general election approaches, Greece’s fiscal position remains in the spotlight and instability continues in Ukraine. As a result, exporters are finding it harder to secure orders and net trade is unlikely to provide much of a boost to growth over the next two years.
Katja Hall, CBI Deputy Director-General, said:
“UK growth continues to outshine its counterparts in Europe and progress is ‘steady as she goes’.
“While lower oil prices are keeping costs down for businesses and consumers, the North Sea oil companies are suffering, harming jobs and investment in the industry.
“Now is not the time for complacency, but falling unemployment coupled with improving wage growth and rock bottom inflation should mean that people see more money in their pockets.
“But businesses are looking on anxiously as insecurity continues to troll the Eurozone and instability remains elsewhere.”