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CBI: Exports and investment to boost UK recovery

One of Britain's top business lobbying organizations has upped its economic forecasts for the U.K., arguing that growth will be boosted by a hike in business investment and exports.

The CBI (Confederation of British Industry), which represents around 240,000 businesses, said on Tuesday that it expected the economy to expand by 2.6 percent in 2014 – up from its earlier forecast of 2.4 percent. Next year, economic growth is seen at 2.5 percent, slightly lower than the 2.6 percent previous expected.


Port of Felixstowe, England
Peter Macdiarmid | Getty Images
Port of Felixstowe, England

The economic expansion will be driven by a hike in business investment, which is expected to make a positive contribution to growth this year, according to the CBI. Business investment growth is seen rising 6.6 percent this year and 8.3 percent in 2015, having fallen by 3.7 percent in 2013.

(Read more: UKeconomy records fastest growth in 6 years)

The CBI added that both U.K. imports and exports look set to rise this year and next, as the euro zone and wider global economy picks up. U.K. export growth is expected to rise to 3.6 percent this year and 4.7 percent in 2015 – from just 1 percent last year.

CBI Director-General John Cridland said the U.K. economy was starting to show signs of the "right kind of growth."

"In our view this is not a debt-fueled, housing bubble-led recovery - our forecast shows encouraging signs that business investment and net trade are starting to play their part," he said in a statement.

(Read more: UK manufacturers upbeat for 2014)

"More businesses are feeling inclined to invest in new technology and advertising. We can also expect to see more companies coming to market to raise finance and an uptick in merger and acquisitions activity as animal spirits return."

The CBI's forecasts followed a slew of upbeat economic data in recent months, boosting hopes of an entrenched economic recovery in the country.

The British economy recorded its fastest annual growth rate since 2007 last year, with full-year growth at 1.9 percent, up from just 0.3 percent in 2012. Growth in the fourth quarter, however, did slow to 0.7 percent, down from 0.8 percent in the previous three months.

Meanwhile, in December, inflation met the 2 percent target set by the Bank of England for the first time since November 2009. In addition, unemployment fell to 7.1 percent in the three months to November, the lowest level since 2009.

(Read more: UK economy goes from 'zero to hero' but don't expect giveaway)

The CBI expects unemployment to have fallen below the Bank of England's 7 percent threshold by the end of 2013. The U.K. central bank has said it will not raise interest rates from their current record low until unemployment has fallen below 7 percent.

The unemployment rate will continue falling to 6.8 percent in 2014 and to 6.6 percent by the end of 2015, according to the CBI.

"However, with inflationary pressures likely to remain muted, and considerable spare capacity in the economy, the CBI sees no prospect of an interest rate rise until the third quarter of 2015 when it is forecasting the first 0.25 percentage point increase," it said in a statement.

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