CBI: GDP to slow amid "dark cloud of uncertainty"

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.

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-General, 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.”

Rain Newton-Smith, CBI Economics Director, added:

“With GDP growth softening and commodity prices still low, inflationary pressures remain muted. Referendum uncertainty also appears to be dampening some activity in the near-term, and so put altogether, we do not now expect to see a rise in interest rates before 2017.

“On the global front, momentum is tepid and the picture for some emerging markets remains weak. Growth among the Asian giants is likely to continue to outperform more advanced economies, but financial fragilities in China are still raising concerns.