The UK economy grew by 0.8% in each of the first two quarters of 2014, but the CBI estimates growth will slow to 0.7% in the third quarter and 0.6% in the fourth. Its growth forecasts for 2014 and 2015 are unchanged at 3% and 2.7%.
Britain’s biggest business group said growth will ease as the impact of improved business and consumer confidence, improving credit conditions and reductions in uncertainty over demand starts to wear off.
The group added that businesses are still facing a significant amount of uncertainty over issues including the Scottish referendum, the general election next year and the debate on Britain’s place in the European Union.
CBI director-general John Cridland, said the possibility of a yes vote in the Scottish independence referendum was ‘the most important risk that the CBI and business are facing.’
Heightened tensions in Ukraine and the Middle East are also increasing risk, putting pressure on commodity prices and on inflation, and also increased global financial market instability.
‘Businesses will continue to keep a weather eye on developments overseas, as subdued prospects in the Eurozone and international political uncertainty make the global economic environment that bit more challenging,’ said Rain Newton Smith, the CBI’s director of economics.
In other areas of the economy, the CBI expects house price inflation to rise to 9.5% this year, up from 3.5% in 2013, and 5.3% next year.
The group is also worried about business investments, pointing out that while business investment is growing, it is still 16% below its pre-recession peak.
The CBI also expressed concern over wage growth. ‘Although hundreds of thousands of new jobs are being created in the economy, there is little upward pressure on starter salaries outside of a few hot spots, such as in parts of the IT sector. For longer-term staff though, awards are often a little higher. We expect wages to pick up across the board next year as the recovery continues,’ Cridland said.