Bloomberg News

U.K. Business Confidence Rises as CBI Maintains Growth Forecast

May 12, 2013

The Confederation of British Industry said company sentiment has improved as Britain’s biggest business lobby group maintained its forecast for growth to pick up over the next two years.

“In the conversations I have with business leaders, I’ve been hearing that whilst firms are on a cautious footing, there’s a bit more confidence about the economic outlook,” CBI Director-General John Cridland said at a press conference in London. “The right way to judge the economy is that it’s moving from flat to growth.”

The CBI published quarterly forecasts today showing that the economy will expand 1 percent this year and 2 percent in 2014, the same as it estimated in February. Gross domestic product grew 0.3 percent last year. The Bank of England left its quantitative-easing plan unchanged last week as some business surveys suggest the recovery is building momentum after the economy returned to growth in the first quarter. The CBI said today its economic forecasts assume no further expansion of QE.

“The drivers of growth, which are just now beginning to broaden, will broaden further next year,” Cridland said. “With the year getting off to a positive start, the mood amongst companies growing a little brighter, our outlook remains one of cautious optimism for the U.K. economy.”

Armed with new quarterly forecasts, BOE policy makers kept the target for bond purchases at 375 billion pounds ($575 billion) on May 9. The decision followed BOE Governor Mervyn King’s penultimate meeting before he is replaced by Bank of Canada chief Mark Carney on July 1.

No More

“We’re not expecting many changes for the next few months before the new governor takes place,” CBI Director of Economics Stephen Gifford said, referring to BOE policy. “We’re probably at the peak of what the QE (UKAPTARG) package has been. There may be some more if economic conditions deteriorate, but if they don’t, I don’t expect any more.”

Gifford said the CBI was putting its hopes on the central bank’s credit-boosting Funding for Lending Scheme to spur the economic recovery.

Chancellor of the Exchequer George Osborne has broadened the BOE’s remit ahead of Carney’s arrival to allow it more flexibility to look through above-target inflation and asked it to review the merits of forward policy guidance.

“Forward guidance is particular thing which many of our members think would be a positive step,” Gifford said.

Inflation Peak

While inflation will peak in the current quarter at 3.1 percent and then fall, it will remain above the Bank of England’s 2 percent target throughout 2014, the CBI said. “Household spending is expected to remain subdued with wage growth weak and unemployment expected to rise slightly,” the lobby group said.

A report from BDO LLP today showed its business confidence index rose to 93 in April from 92.2 in March, while its gauge of company output expectations increased to 94.1 from 93. Still, its output index remains below the 95 level that points to positive growth one quarter ahead.

Separately, the Chartered Institute of Personnel and Development said its employment measure had increased to 9 this quarter from 5 for the previous period.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net.

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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