The Confederation of British Industry just revealed that it cut its growth forecasts for Britain’s economy due to the risks associated with the EU referendum and the possible “messy” end to the Greek crisis.
The business lobby group, which represents 190,000 members, predicts the UK economy to now grow by 2.4% this year and 2.5% in 2016. This is down from February’s forecast of 2.7% and 2.6%, respectively, Business Insider reported.
“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,” said the CBI in its forecast.
John Cridland, CBI Director-General, added in a statement:
“The recovery has built up a good head of steam and we expect to see solid, steady and sustainable growth carrying through into next year. Our members are feeling more upbeat than some of the recent official numbers suggest, with our surveys showing that retail and the service sectors in particular are performing strongly.
“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.”
Less Rosy Picture
Rain Newton-Smith, CBI Director of Economics, also highlighted in a statement about the effects the Greek crisis is having on Britain.
“Overseas the picture is less rosy. The Eurozone has regained some momentum this year, thanks in part to the European Central Bank’s quantitative easing program, but growth is unlikely to pick up much further as the initial boost from falling oil prices fades.”
“Recent talks over Greece underline the need for a decision on extending bail out financing. Meanwhile, weaker US growth and the slowdown in China, coupled with the strength of sterling against the euro, are acting as a drag on exports.”
This falls in line with the British Chambers of Commerce’s forecast for UK economic growth. On June 5, it said in a report that Britain’s economy will expand by 2.3% in 2015, which is down from its previous forecast of 2.7%. Although it thinks the slowdown is temporary, the BCC said that it will affect its growth forecasts.
It predicts that the British economy will expand to 2.6% in 2016 and 2017.
Britain’s ruling Conservative Party will have to deliver a referendum by 2017 over whether Britain will stay part of the EU or not, since it was a linchpin pledge during the campaign.
According to reports, Prime Minister David Cameron is said to be already putting plans in motion to bring forward an in/out referendum by a year.
Uphill Battle
Greece is still in an uphill struggle to repay its debts, as well as negotiating its debt deal. Latest reports say that Greece wants to restructure its huge public debt through cheaper refinancing, longer maturities, a write off of some principal, and turning some debt into perpetual or GDP-linked bonds, but the plans have no support in the eurozone so far.
Greek Prime Minister Alexis Tsipras failed to deliver alternative economic reforms that he had “promised”, European Commission president, Jean-Claude Juncker, said Sunday at the G7 summit in Bavaria.
Juncker urged Tsipras to come up with some alternative proposals “swiftly” so that negotiations could continue this week.
On Friday, Tsipras rejected the EC’s own reform proposals as “absurd.”
In a signal that relations between Europe and Greece’s new Syriza government may be reaching breaking point, Greece’s combative finance minister, Yanis Varoufakis, told a Greek newspaper that the latest reform demands were “an aggressive move designed to terrorize the Greek government... this Greek government cannot be terrorized”.
