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Britain GDP to Grow as Domestic Demand Improves

Britain GDP to Grow as  Domestic Demand ImprovesBritain GDP to Grow as  Domestic Demand Improves

The Confederation of British Industry has upgraded its GDP growth forecast for this year to 2.6%, pointing to a stronger uplift in productivity, robust household spending and decent business investment prospects.

The business lobby group’s forecast, published Monday, is up from the 2.4% expansion it expected in June. It has also increased its forecast for growth in 2016 to 2.8%, up from 2.5% previously, NewsNow reported.

“Strong domestic demand and upbeat official data since our last forecast has boosted our outlook for 2015,” said Rain Newton-Smith, the CBI’s director of economics. “We expect this strength to continue into next year.”

Despite the upgrade, the CBI’s 2015 GDP growth forecast is still below the 2.8% expected by the Bank of England. It is, however, in line with other private sector forecasts, as collected by the treasury. And it is now higher than the 2.4% forecast by the Office for Budget Responsibility in the budget last month.

The CBI said business investment is likely to “remain healthy” and said its surveys were pointing to robust plans for capital spending by firms for the months ahead. It sees total business spending rising by 6.2% this year, with manufacturing fixed investment jumping to a 12.6% expansion.

  Domestic Demand

However, the CBI added that it expected all the growth in 2015 to come from domestic demand, with the rest of the world’s economy giving no fillip to net exports and the rising currency dampening activity.

“The strong pound is hampering our competitiveness abroad and growth in the eurozone, our biggest trading partner, will remain subdued for the foreseeable future, particularly given renewed uncertainty,” said John Cridland, the CBI’s outgoing director general. Cridland will be replaced by Carolyn Fairbairn, a former member of the Number 10 Policy Unit, in November.

The latest estimate from the Office for National Statistics is that the economy grew by 0.7% in the second quarter of the year, after an identical expansion in the first three months. The ONS estimates that the economy grew by 3% last year, the strongest full year of growth since 2006.

 Export Outlook Dim

A separate survey from the EEF manufacturers’ group, also published Monday, echoes the CBI’s downbeat assessment of the export outlook. Its annual EEF/Vodafone Innovation Monitor shows that two-thirds of manufacturing companies said efforts to move into new export markets had been unsuccessful.

It also found that only half of companies are using innovation to expand into new export markets, while 40% of manufacturers lack the resources they need to do so.

  Economy Vulnerable to Int’l Shocks

Chancellor of the Exchequer George Osborne said the UK economy is vulnerable to international shocks as concerns about a slowdown in China caused stock markets across the world to tumble.

“Everyone is concerned about the situation on the Asian financial markets,” Osborne told reporters in Helsinki on Monday after a meeting with Finnish Finance Minister Alexander Stubb. “I would take it as a reminder that we are not immune from what happens in the world.”

Osborne’s comments underline a growing unease among investors and policy makers as a sell-off in China’s stock market spreads globally, sparking concern about the potential impact on the world economy. Chinese shares tumbled the most since 2007, commodities fell to a 16-year low and emerging-market currencies weakened to a record.

“Obviously the Chinese authorities are doing all they can to stabilize those markets,” Osborne said.

 “You don’t know where the next crisis is coming from, where the next shock is going to come from in the world,” he said. “Britain is a very open economy, probably the most open of the largest economies, and we are affected by what happens, whether it is problems in the eurozone, problems in Asian financial markets.”

 

Financialtribune.com