UK CBI Forecast Subdued GDP Growth In Coming Years

The Confederation of British Industry forecast a steady, but subdued economic growth for the UK over the next couple of years as the country faces several headwinds.

In its latest economic forecast, released Tuesday, the business lobby said British businesses and the government should navigate carefully in the months ahead amid the ongoing political uncertainty and Brexit negotiations.

The business group forecast 1.6 percent growth for this year and 1.4 percent for 2018. The outlook for this year was revised up from 1.3 percent and that for next year from 1.1 percent.

Nonetheless, the CBI's projection remains unchanged compared to its previous November forecast, with the same average quarterly growth of 0.3 percent seen for the second half of this year as in November.

"Growth should be steady, if restrained, over the next couple of years as the pace of the economy shifts down a gear," Carolyn Fairbairn, CBI director-general, said.

Following a sharp slowdown in GDP growth in the first quarter, the CBI expects a mild rebound to 0.4 percent in the second quarter.

As inflation is forecast to stay close to the current 2.9 percent level through the end of this year, real earnings are set to remain under pressure, the CBI said. Consequently, slowing household spending growth is expected to provide less support to growth.

Business investment is seen holding up over the near-term, but with uncertainty still holding back larger spending projects, the CBI forecast investment to wane over the course of 2018.

Nonetheless, softer domestic demand is expected to be counter-balanced by more support from net trade. After a large drag in the first quarter, the CBI expects net trade to support economic growth throughout the forecast period.

On the monetary policy front, the CBI expects the Bank of England to lift the interest rates slightly to 0.50 percent in the third quarter of 2018.

"Risks to our forecast remain high," Rain Newton-Smith, CBI Chief Economist, said.

"In particular, uncertainty over the UK's future role in the EU could have more of an impact on both activity and financial market volatility than we expect."

The economic forecast was carried out prior to the General Election on June 8 that led to a hung parliament after the Tories led by Prime Minister Theresa May failed to win a majority.