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Plateau time? UK growth seen stalling as BoE eyes hike

As the Bank of England (BoE) meets to contemplate the end of its ultra-easy monetary policy, Britain's leading business lobby group predicts the country's economic growth could stall in the second half of this year.

The Confederation of British Industry (CBI) predicts that the key factors to the country's fast-growing economy -- business and consumer confidence, improving credit conditions and better demand expectations – will start to wear off. On top of this, domestic political concerns and geopolitical tensions will combine with this slowdown to produce a plateau effect for U.K. growth, the CBI forecasts.

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"For the rest of this year, we expect growth to get onto a more even keel and the recovery to become further entrenched next year," John Cridland, the CBI's director-general said in a press release on Thursday morning.

"U.K. businesses are still facing a significant amount of uncertainty, with the forthcoming Scottish referendum, the general election next year and the debate on Britain's place in the European Union. In the wider world, geopolitical risks are growing, with heightened tensions in Ukraine and the Middle East."

Read MoreUK economy grew more than thought in 2011, 2012: ONS

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Growth of 3 percent is still projected for 2014 and is also unchanged for next year at 2.7 percent. However, the group says quarter-on-quarter growth for the rest of the year will "steady out" with a figure of 0.7 percent in the third quarter and 0.6 percent in the fourth.

The estimates come on the same day as the Bank of England is set to complete its two-day policy meeting with a rate announcement due at midday London time. Two members of the central bank's rate-setting committee voted for an interest rate hike back in August but economists are not expecting any policy change on Thursday.

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While the CBI warned that growth might stall slightly for the U.K., the organization did not call on the BoE to change any of its policies or voice concerns over an early rate hike. It predicts that weak wage growth will continue to make the central bank cautious over any move and maintains its view that the first interest rate rise will happen in the first quarter of 2015.

"Although hundreds of thousands of new jobs are being created in the economy, there is little upward pressure on starter salaries outside of a few hot spots," Cridland said. "We expect wages to pick up across the board next year as the recovery continues."

This depressed and "unprecedented" wage growth has left BoE Governor Mark Carney with a headache, according to Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR). He believes that it has now become a more important metric for the bank rather than the improving unemployment numbers but is slightly optimistic on the economy, describing it as a "glass half or two-thirds full."

"There's just no case for an interest rate hike right now," he told CNBC, revealing that most economists remain mystified as to why wage growth is so low. He believes that the numbers show that firms were happy to hire people but are not happy pay them more.


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