Britain’s leading employers’ organisation, the Confederation of British Industry, has warned that the growth prospects for the UK economy have dimmed since George Osborne’s autumn statement three months ago.
Cutting its forecasts for both 2016 and 2017, the CBI said a weaker performance at the end of last year coupled with a less rosy outlook for household spending, trade and investment had led to the growth downgrade.
The employers’ body said it expected economic growth, as measured by gross domestic product, to be 2.3% in 2016 and 2.1% in 2017 – in both cases a 0.3 percentage point reduction on the forecasts made in November 2015.
The CBI said household spending would be constrained by modest pay increases and the struggle to raise productivity levels. The poorer growth prospects for the UK would enable the Bank of England to keep interest rates on hold at 0.5% for the rest of the year.
With just more than a month to go until Osborne delivers his budget, the independent Office for Budget Responsibility (OBR) is currently preparing new forecasts for the economy. Those prepared for the autumn statement pencilled in growth of 2.4% in 2016 and 2.5% in 2017.
Since then, however, revisions to GDP data have suggested that the economy was less strong in 2015 than previously thought, and this could force the OBR to revise down its growth predictions.
Weaker GDP growth would have a knock-on effect on the OBR’s predictions for tax revenues and the size of the government’s budget deficit, projected to fall from £69bn in the current 2015-16 financial year to £47bn in 2016-17 and £22bn in 2017-18.
Despite the turbulence in the financial markets that has marked the first six weeks of 2016, the CBI believes the UK economy is resilient enough to withstand the pressures.
Carolyn Fairbairn, the CBI’s director general, said: “The UK is likely to remain among the fastest-growing advanced economies, with strong fundamentals, though our forecast recognises growing overseas risks.
“While there’s little current evidence of uncertainty negatively affecting business investment ahead of the EU referendum, this is a potential risk to the UK’s solid economic outlook, along with concerns over China and emerging markets.
“And despite domestic demand remaining healthy, it’s clear that increasing productivity remains a priority as a means of achieving sustainable wage growth.”