CBI upgrades GDP growth forecast

The UK economy is ‘picking up steam’ as households start to feel better off, according to a new forecast from the Confederation of British Industry (CBI).

The CBI has upgraded its GDP growth forecast for this year from 0.8% to 1% and for next year from 1.6% to 1.9%, nearing pre-pandemic levels. Falling inflation is expected to lead to a Bank of England interest rate cut in August, but the CBI stressed the need to do more to achieve sustainable growth.

CBI lead Economist Alpesh Paleja said “On the cost of living, yes inflation is getting back to target and that’s very positive but the level of prices is still quite high.”

With the General Election a matter of weeks away, the focus is firmly on the UK economy. The latest CBI economic forecast points to encouraging signs that it is on track to gradually pick up steam over 2024 and 2025. After a strong start to the year, momentum will continue with GDP growth in 2025 anticipated to reach 1.9%.

The economy has struggled in recent years under the pressures of economic shocks such as the COVID-19 pandemic and Ukraine war. GDP growth came in at only 0.1% over 2023, with the dual headwinds of high inflation and increased interest rates weighing on economic activity.

The CBI’s latest UK Economic Forecast shows that UK GDP growth is projected to rise to 1.0% in 2024 and that momentum should continue in 2025, with GDP growth anticipated to reach 1.9% – broadly in line with the average pre-COVID growth rate (of 2.0% between 2010-19).

Consumer spending is the main driver of growth, reflecting an improvement in households’ real incomes as inflation falls whilst business investment is set to be weak in 2024 but will recover as GDP growth strengthens.

Meanwhile productivity remains below its pre-covid trend, signalling further action is needed to spur longer-term, sustainable growth.

Louise Hellem, CBI Chief Economist, said “It’s encouraging to see that the outlook for the UK economy is improving after a difficult 2023. However, we cannot afford to be complacent about our progress going forward. To ensure longer-term, sustainable growth, we must tackle our ongoing productivity problem.

“Our Business Manifesto sets out several policies to improve productivity and deliver prosperity through a positive vision for the UK economy. These include a cutting-edge trade and investment strategy, a Net Zero Investment Plan, and more support for firms to invest in AI – particularly where it can help in automation and super-charging productivity.

“Now in the midst of a General Election, political parties have an opportunity to prioritise the economy and unlock long-term, sustainable growth by using their manifestos to set out measures that will support business investment and propel growth for the next decade and beyond.”