The CBI has upgraded its growth prediction for 2015 in its latest economic forecast against a backdrop of lower oil prices and inflation.

 

Job creation continues apace and wage growth is finally picking up. Coupled with low inflation, this will give a boost to real household incomes, going some way to improving living standards. Lower energy prices are also feeding through to lower operating costs for companies, leaving more space for investment.

 

GDP growth is expected to remain steady throughout this year, rising by 0.7% each quarter. GDP is then forecast to grow strongly in 2016, by 2.6% over the year as a whole, which translates into growth of 0.6% a quarter.

 

Alongside household spending, business investment is expected to continue providing sturdy support to GDP growth, rising by 5.8% this year and by 6.5% in 2016 as the UK’s expansion becomes further embedded.

 

The CBI expects some improvement ahead, with growth increasing from 2.9% this year to 5.5% in 2016. But with import growth set to rise firmly due to strong domestic demand, the net trade contribution to GDP growth will be small at best.

 

A weak export backdrop is likely to weigh on the outlook for manufacturing output. While growth is expected to improve slowly, from 1.5% in Q1 2015 to 1.8% by the end of 2016, it will remain underwhelming.

 

More positively, the UK unemployment rate is expected to continue its downward trend in 2015 and into next year, levelling off at 5.2%, while wage growth is expected to reach 3.0% by Q4 2016.