CBI predicts UK economy growth


The UK economy will rise by 2.5 per cent by 2007, following on from 2.4 per cent growth during the last 12 months, according to the Confederation of British Industry (CBI).

Releasing its gross domestic product figures (GDP) for the last year and its economic forecast, the CBI believes that despite increasing energy costs and the threat of inflationary pressures, the UK economy is set for a period of moderate and consistent growth.

Ian McCafferty, chief economic adviser at the CBI, said: "The economy is now expected to grow slightly more quickly in 2006 than we previously thought, reflecting the better prospects for exports and greater government consumption."

The organisation's analysts predict that the Bank of England can still combat inflation without having to resort to raising interest rates, something it has been vehemently opposed to in recent months, with energy prices predicted to stabilise.

"Given the temporary nature of the inflation overshoot, the Bank of England can still deliver its inflation mandate without the need to change base rates," explained Mr McCafferty.

The rise in the UK's GDP from forecasted values reflects a strengthening international economic scene as well as a rise in overseas demand for good and services based in the country.

Continually improving exports are likely to result in a one per cent growth in the manufacturing sector by 2007, the CBI claims, while the services sector, by far the largest aspect of the UK's overall economy, will register healthy growth of 2.7 per cent by the next year.

But the organisation warns that household income is likely to be subdued by a stagnation of earnings, with increasing levels of unemployment countering any economic benefits gained from the flourishing housing market.

"There will also be some of the long-desired rebalancing in the economy through 2006 as household consumption remains constrained and government spending slows relative to recent years, with growing export demand off-setting these factors," the economist added.

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