British economic recovery to spur investment growth

The Confederation of British Industry (CBI) Tuesday revealed in its economic forecast that businesses were expected to respond the economic recovery with a rising program of business investment. The CBI data showed that the British volume of output grew at the fastest rate since 2007 in the three months up to January in the manufacturing, services, and retail sectors. "We expect business investment to contribute towards growth this year and next year, and also for our net trade performance to improve," said Katja Hall, chief policy director at the CBI, which represents 240,000 British businesses. Hall told journalists that the recovery, which saw unexpected strong GDP growth last year of 1.9 percent, was likely to continue strongly into 2014 and 2015. She said, "We have had encouraging data and a strong finish to 2013, pushing GDP growth up to 1.9 percent, ending 2013 with the British economy in pretty good shape." "Optimism is rising; we believe we are seeing signs of the right type of growth -- not debt-fueled, housing bubble-led recovery, instead we are seeing investment is starting to pick up," said Hall. The CBI has upgraded its expectations for 2014 GDP growth to 2.6 percent, from 2.4 percent in its November economic forecast. The forecast for 2015 is downgraded slightly, from 2.6 percent to 2.5 percent. Anna Leach, head of economic analysis, said that businesses had been sitting on ample cash reserves for several years, and the CBI's latest survey showed a fall in uncertainty alongside an increasing intention to invest. "We are forecasting business investment growth of 6.6 percent this year, rising to 8.3 percent in 2015," said Leach, who added that these strong figures had to be read against the fact that business investment was still 25 percent below the pre-crisis peak. Businesses are reporting that they are much more willing to spend on new technology and intangibles like advertising, and R&D, said Hall, who added that more companies going to the market to raise finance, and that there was an upturn in mergers and acquisitions activity. Risks have reduced, but dangers remain around structural changes in the Eurozone, and there are increased risks in emerging markets, with potential risks posed to financial market stability from the unwinding of the Quantitative Easing policy in the United States, said Hall. Unemployment was expected to have reached the Bank of England's 7 percent threshold for bank rate review in the final quarter of 2013, said Leach. However interest rates, currently at an historical low of 0.5 percent in a bid to stimulate the economy, were expected to stay on hold until Q3 2015, said Leach. Inflation was expected to remain low (currently 2.1 percent), with no significant rise until Q3 2015, partly accounted for by the remaining slack in the economy, said Hall.