CBI Lifts Growth Forecast Amid Optimism

The CBI has lifted its forecast for economic growth for this year from 1% to 1.2% amid signs of a pick-up in business confidence.

Optimism about performance across the services, construction and manufacturing sectors has added to hopes that the recovery is gathering pace after 0.6% growth in the second quarter.

The CBI, which represents 240,000 UK businesses, has also increased its forecast growth for 2014, from 2% to 2.3%, predicting that increasing disposable income and business and housing investment will boost demand.

However, the body warns that a hoped-for rebalancing of the economy to become less reliant on consumer spending and more focused on investment and trade is taking longer than expected.

Its upgrade comes after figures last week showed that the eurozone, Britain's biggest trading partner, had emerged from recession.

The CBI says improvements in Europe together with a broader global recovery will give a positive boost to exports.

CBI chief John Cridland says recovery is still in its early days

However a recovering domestic situation should also mean more imports so the trade contribution will remain small, it warns.

Meanwhile the organisation says that the Bank of England's recently-announced "forward guidance" policy - designed to provide reassurance that interest rates will remain low for some time to come - will add to positive sentiment.

CBI director-general John Cridland said: "The economy has started to gain momentum and confidence is picking up, but it's still early days.

"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."

Stephen Gifford, CBI director of economics, warned that while a gradual increase in UK investment and UK trade was expected, risks remained including from the eurozone and a new regulatory financial environment.

"Meanwhile, emerging markets are facing structural challenges, particularly as China rebalances towards domestic consumption, which indicates muted growth prospects," he added.

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