A rise in household spending, paired with robust investment growth will help to boost the UK's economy and fuel "twin-engined" growth, according to the latest economic forecast from a leading business group.
The Confederation of British Industry (CBI) is forecasting 2.6 per cent GDP growth for 2015 and 2.8 per cent in 2016. Those numbers have been upgraded from June forecasts of 2.4 per cent and 2.6 per cent respectively.
A combination of factors have led to the upgrade, including signs of recovering productivity in the first half of this year and stronger wage growth.
The CBI says that low inflation from falling commodity prices has led to a boost in household spending, and business investment is also likely to remain healthy, as surveys have indicated some big plans for capital spending.
John Cridland, director general of the CBI, said: "We're encouraged by the twin-engined growth of household spending, spurred by stronger wage increases and low inflation, buttressed by business investment."
He added that there have been signs of productivity picking up, but warned that the outlook on exports is muted.
"The strong pound is hampering our competitiveness abroad and growth in the Eurozone, our biggest trading partner, will remain subdued for the foreseeable future, particularly given renewed uncertainty," he explained.
According to Rain Newton-Smith, CBI director for economics, strong domestic demand and upbeat official data has boosted the outlook for the rest of 2015. This strength is expected to continue into next year and government consumption will also provide a small uplift next year, she said.
Ms Newton-Smith said that businesses could face other pressures such as capacity constraints and skills shortages. She also predicts that the Bank of England's Monetary Policy Committee will announce the first interest rate increase during the first quarter of 2016.
"We've revised down our exports forecast for 2016, largely due to slower growth in China bearing down on global prospects, and a stronger Sterling," she added.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.