The Confederation of British Industry (CBI) has raised its forecast for UK economic growth this year to 1.2% - double the pace predicted by Finance Minister George Osborne in his March budget - as the business lobbying group cited mounting confidence across the economy.
It becomes the latest organisation to raise its outlook for the UK after a series of surveys and official data have suggested green shoots of recovery are taking hold, prompting the CBI to raise its 2013 growth estimate from 1%.
However, the CBI, which has long been a supporter of the government’s austerity drive and promises to cut the deficit, sounded a note of caution as it warned that ministers’ push for a rebalancing away from consumption is taking longer than expected.
“The economy has started to gain momentum and confidence is picking up, but it’s still early days,” said John Cridland, CBI director-general. “We need to see a full-blown rebalancing of our economy, with stronger business investment and trade before we can call a sustainable recovery. We hope that will begin to emerge next year, as the eurozone starts growing again.”
The CBI said there were “signs of a pick-up in confidence across a broad range of sectors, including services, construction and manufacturing”.
For 2014, the group is now pencilling 2.3% growth, up from May’s forecast of 2%.
Leading thinktank, the National Institute for Economic and Social Research, and forecasters Fathom Consulting both upgraded their outlook for the UK economy earlier this month to 1.2%.
Official UK data on Friday is expected to add to the tentatively optimistic tone, confirming economic growth accelerated in the second quarter to 0.6%, double the pace in the first three months of this year.
That would be unchanged from the number the Office for National Statistics estimated in its first take on GDP for the quarter, which was welcomed by the chancellor as showing the economy has moved “out of intensive care”.
But many economists share the CBI’s concern that the economy remains overly dependent on consumers, who account for around two-thirds of all spending. They say consumers are not in a strong position to drive a recovery as they grapple with the biggest squeeze on household budgets for decades.
There was fresh evidence of that pressure yesterday.
The latest Asda Income Tracker suggests disposable household incomes fell last month as wages failed to keep pace with living costs. The supermarket chain says the average UK household had £160 a week of disposable income in July, down £1 a week from a year earlier and £5 a week from a peak in February 2010.
“A ‘feel-good’ summer has contributed to a boost in retail sales, but we can’t ignore the fact that the squeeze on income growth and rising cost of living continue to pull at consumer purse strings,” said Asda chief executive Andy Clarke.