UK economy ‘still on a healthy trajectory’ says CBI

Rain Newton-Smith, CBI director of economics.

Rain Newton-Smith, CBI director of economics. - Credit: Archant

The UK economy is continuing on a healthy trajectory with the rate of growth stable in the three months to November, according to the CBI.

However, the business organisation’s latest Growth Indicator, which is published today, shows that expectations for growth are not as strong as earlier in the year although they remain well above their long-run average.

The survey of 742 businesses brings together economic activity survey data from a range of sectors. It shows slightly stronger growth in manufacturing, with output up in 15 of the 18 sub-sectors, and growth in consumer and business professional services.

This offsets slowing growth in retailing, with the resulting overall balance of plus 20% being little changed from October’s survey balance of plus 19%.

Businesses’ expectations are proving resilient. The balance of plus 26% for the next three months is virtually unchanged from plus 25% in October and plus 27% in September. However, this represents a scaling back of expectations compared with earlier in the year. For example, the balance was plus42% in April (the year’s highest) and plus 38% in August.

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The CBI says the latest data is “broadly consistent” with is view that the pace of GDP growth will cool modestly in the remainder of 2014, as the recent boost from pent-up demand fades.

This, it says, will mark a return to “steadier and sustainable rates of growth, with the overall trajectory ofthe UK economy remaining healthy”.

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However, it warns that headwinds to growth from the global backdrop persist. The outlook for the eurozone is weak, with a real risk of deflation, growth in emerging markets has slowed and geopolitical tensions in the Middle East, Russia and Ukraine are compounding the general climate of uncertainty among businesses.

Domestically, there is also uncertainty around whether growth will falter in the face of persistently weak productivity and real wage growth, while political uncertainty ahead of next year’s general election and a possible EU membershipo referendum may also inject more caution into businesses, it says.

Rain Newton-Smith, CBI director of cconomics, said the latest survey showed “a continuing story of solid growth”.

“Previously pent-up demand delivered a strong boost to growth during the first half of the year but this effect may be fading,” she said. “The UK is continuing to expand on a healthy trajectory, returning now to steadier and more sustainable growth rates.”

And she added: “Domestic political uncertainty is an issue for businesses but the global backdrop is a greater concern. The Eurozone is weak, with a real risk of deflation, growth in emerging markets has slowed and geo-political tensions in the Middle East and Ukraine are the biggest threats to confidence.”

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