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CBI Cuts UK Economic Growth Forecast - Zeal Capital Market

CBI Cuts UK Economic Growth Forecast

06-12-2021 09:56

ZFX – The UK economy looks set to grow more slowly than previously thought throughout 2023 due to global supply chain issues, as well as the role the government should play in encouraging long-term business investment, the employers group said.

The Confederation of British Industry (CBI) cuts its forecast for economic growth to 6.9% in 2021 and 5.1% in 2022 from previous forecasts of 8.2% and 6.1%, respectively.

It said the downgrade largely reflects weaker growth since its last forecast in June and supply chain problems that have slowed recovery from last year’s coronavirus slump likely to end in mid-2022.

With exports still weak, household spending will drive 90% of growth next year and two-thirds by 2023 thanks to a strong job market and increased savings during the pandemic.

Business investment looks set to grow by 8.2% next year and surpass pre-pandemic levels, but the bounce will likely prove short-lived with corporate investment falling back in mid-2023 when the tax incentives will expire.

“One 18-month policy can’t change four decades of underinvestment,” said Rain Newton-Smith, CBI’s chief economist.

CBI asked Prime Minister Boris Johnson to provide regulations to spur investment and innovation to help build new markets in clean energy and other sectors.

The new forecast from the group sees inflation peaking at 5.2% in April and remaining above the Bank of England’s 2% target for another year or so while unemployment will fall to 3.8% by the end of 2023.

The CBI forecast was made before the emergence of the Omicron variant of the coronavirus that led to stricter COVID regulations. Rain-Smith said he hoped the UK’s high vaccination rates would minimize the growth hit.

Meanwhile, when viewed technically, the daily market structure for the British currency, GBP, when compared to the greenback, looks very bearish, with the moving averages below the 50, 100, and 200 lines.

Will GBP continue to weaken? There is no certainty for that. However, GBP/USD possibly will head to the next support at 1.31500 in the near term.

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