LONDON — The British business lobby CBI has looked once again into its crystal ball, and the vision isn’t rosy.
The CBI speaks on behalf of 190,000 British businesses across a variety of sectors, representing about one-third of private-sector employees.
It believes the U.K. economy will continue to grow — but at a slower rate of 2 percent — through 2016 and 2017. In February, the CBI had said it was expecting growth this year to be 2.3 percent, and 2.1 percent in 2017.
Household spending and investment will continue to drive growth, but the deterioration in the global economic outlook, including weaker prospects for China and other emerging markets, continues to represent major challenges.
It said the economy saw a softer-than-expected start to the year, which contributed to a large part of the downgrade in GDP growth in 2016. There are also signs that global economic risks, including uncertainty ahead of the EU referendum in June, are starting to weigh on investment plans.
“A dark cloud of uncertainty is looming over global growth, particularly around weakening emerging markets and the outcome of the EU referendum, which is chilling some firms’ plans to invest,” said Carolyn Fairbairn, CBI director-general.
“At present, the economic signals are mixed — we are in an unusually uncertain period.”
The CBI also said it believes the timing of a first rise in interest rates will now be in the second quarter of 2017 — rising to 0.75 percent — against the backdrop of slower growth.
Although household spending will remain a major driver of economic growth, it is expected to ease, due in part to rising inflation over the course of the next two years.
Household spending will account for around 80 percent of growth in 2016, and roughly half in 2017.
Investment spending is expected to ease in the near-term amid some signs that referendum uncertainty is bearing down on plans for capital investment.
A recovery in investment is expected in the second half of 2016, such that business investment remains a key support to GDP growth over the forecast period, accounting for around a quarter of growth in 2016, and a third in 2017, according to the forecast.
Globally, momentum is “tepid” and the picture for some emerging markets remains weak, according to Rain Newton-Smith, CBI economics director.
“Growth among the Asian giants is likely to continue to outperform more advanced economies, but financial fragilities in China are still raising concerns.”
The CBI said growth in advanced economies should continue at a steady, if subdued, pace over the next couple of years, with the forecast for U.S. growth dropping to 2 percent in 2016 from 2.4 percent in 2015, and rising to 2.3 percent next year.
The recovery in the euro zone should pick up a little more, with GDP growth rising to 1.6 percent in 2016 from 1.5 percent in 2015. While growth in China, at 6.5 percent, and India, at 7.4 percent, will outperform the advanced economies over the next two years, prospects for the rest of the emerging world remain weak and commodity exporters feel the hit from low prices.