As the storm clouds around the nose-diving Chinese stock market threaten more widespread gloom as nervous investors sell stocks around the world, it is perhaps timely to focus on a more upbeat assessment for one of the world’s leading economies, the UK.
According to the intriguingly-named Rain Newton-Smith, director for economics at Britain’s CBI: "Strong domestic demand and upbeat official data since our last forecast has boosted our outlook for 2015. We expect this strength to continue into next year." On the strength of this analysis, the CBI expects growth to be stronger this year and next and has increased its growth forecasts from 2.4 to 2.6% for this year and from 2.5 to 2.8% for 2016.
The drivers for the higher output figures have been a “robust” increase in investment growth in the UK and improved household (i.e. consumer) spending. The CBI believes that UK interest rates will move upwards in the first three months of 2016, having previously believed that a rise would not happen until after Q1 2016, and expect an incremental rise of 0.25% taking UK rates to 0.75% after more than seven years at their historic low value of 0.5%. Like most people, they then see rates climbing towards normal, historic levels, over a fairly long term; given the still relatively fragile global recovery, anything else would jeopardise matters.
Commenting on the UK economy, the CBI sees improved productivity as a factor boosting wage growth (which will feed in to higher consumer spending) coupled with low inflation and falling fuel and energy costs, UK households ought to have more disposable income. On the negative side of the balance sheet, they caution that a strong Pound may curb UK exports and expect only subdued growth within the Eurozone which is the UK’s biggest trading partner.