British economy to grow more than expected

Britain’s economy will grow more strongly than previously thought this year and in 2016, an industry group said yesterday, as it also brought forward its prediction for the timing of Britain’s first rate increase in over seven years.

The UK economy will expand by 2.6% in 2015 and 2.8% in 2016, the Confederation of British Industry said, up from forecasts of 2.4% and 2.5% it made in June.

The confederation said a pick-up in household spending and investment, would more than offset a drag from foreign trade.

Against this backdrop, and in light of more hawkish comments from Bank of England officials recently, the confederation also said it expected a rate rise in the first quarter of 2016 rather than in the second quarter, as it had previously expected.

“We’re encouraged by the twin engined-growth of household spending, spurred by stronger wage increases and low inflation, buttressed by business investment,” said confederation director general John Cridland.

He said there were tentative signs that productivity was picking up.

A rise in sterling and continued weak demand from the eurozone has weighed on Britain’s trade balance this year and left the country’s economy heavily reliant on consumer spending.

The UK government wants to see more investment in manufacturing to ensure the recovery is sustainable.

A separate survey conducted by EEF, a manufacturers’ association, painted a mixed picture of the sector.

The number of companies engaged in product innovation this year rose to 64% from 59%.

But for a second year in a row, UK-based manufacturers were increasingly worried about falling behind foreign competitors on innovation, something Britain spends less on than many other big economies.