The UK will see gross domestic product growth of 2.0% in both 2016 and 2017 according to Confederation of British Industry estimates—a downgrade from 2.3% and 2.1% in its February forecast.
The CBI says there are signs that uncertainty over the outcome of the EU referendum is having a “tangible impact” on the spending plans of some firms, Financial Reporter quoted the CBI as saying.
It believes that the timing of a first rise in interest rates will now be in the second quarter of 2017 (rising to 0.75%).
Household spending will remain a major driver of economic growth, though it is expected to ease (2016–2.5%, 2017–1.5%). This is due, in part, to rising inflation over the course of the next two years–picking up towards the Bank of England’s target of 2% by early 2017–which tempers growth in real incomes.
Nonetheless, household spending will account for around 80% of growth in 2016, and roughly half in 2017.
However, a recovery in investment is expected in the second half of 2016, such that business investment remains a key support to GDP growth over the forecast period, accounting for around a quarter of growth in 2016, and a third in 2017.
“Carolyn Fairbairn, CBI director-g eneral, said: “We expect the UK’s growth path to continue but it is likely to be at a slower rate than previously thought. A dark cloud of uncertainty is looming over global growth, particularly around weakening emerging markets and the outcome of the EU referendum, which is chilling some firms’ plans to invest. At present, the economic signals are mixed–we are in an unusually uncertain period.
Weak Pay Growth
Workers are being warned to expect meager wage rises until at least 2020, as weak productivity and new costs such as the national living wage curb employers’ readiness to raise salaries.
Even though employment is expected to rise, pay growth is forecast to be just 1.7% over the next year, as an ample supply of labor helps employers hold back on wage rises in a “jobs-rich, pay-poor” economy, said the Chartered Institute for Personnel and Development.
The gloomy outlook for workers comes as the business group, the CBI, has warned that the economy is losing steam.
Numbers of shoppers visiting retail centers fell in April, in the latest evidence that cautious consumers are cutting back or going online to hunt for better deals. Consumers have been the main drivers of the UK’s economic recovery but recent business surveys suggest confidence is flagging, affected by a range of factors from economic uncertainty ahead of the EU referendum to a darker global outlook.
Weak pay growth has also added to pressures on households and the CIPD, the trade group for the Human Resources industry, warned that the pattern of low rises in pay is set to continue. It is calling for more practical government measures to help employers raise productivity, a measure of output per hour worked.
“For now, there’s no sign of the economy running out of jobs, or out of people to fill those jobs,” said Mark Beatson, CIPD chief economist.
“However, the UK is now in its eighth year of productivity go-slow which continues to limit the scope for employers to pay more, and recruitment and retention problems have so far proved manageable without across-the-board pay rises.”
The group surveyed more than 1,000 employers and found the expected average pay rise over the next year, at 1.7%, was higher than the 1.2% in its previous survey three months ago. But it noted that was a relatively weak pace of growth and predicted various factors meant workers were unlikely to see much of a boost to the real, or post-inflation, value of their pay “until at least the end of this decade”.
