Oil price falls inspires CBI growth upgrade

CBI. Stefan Rousseau/PA Wire

CBI. Stefan Rousseau/PA Wire - Credit: PA

The CBI has upgraded its forecast for economic growth this year amid low oil prices and falling inflation.

Britain is now expected to grow by 2.7pc in 2015, up from a previous projection of 2.5pc, according to the business group.

The CBI cited continued strong job creation and said wage growth was finally picking up - combining with low inflation to boost living standards. Inflation for December was measured at a record-equalling low of 0.5pc with January figures due tomorrow.

It also said lower energy prices were feeding through to lower operating costs for companies leaving more space for investment - though North Sea companies have taken a hit.

Oil prices have fallen by around half since last summer.

The CBI said the better picture for the economy also reflected the likelihood that the Bank of England would not raise interest rates from 0.5pc until early next year. It expects to see growth of 2.6pc for 2016, up from a previous prediction of 2.5pc.

But the organisation warned of continued political volatility at home and abroad with the approach of the UK general election, the Greek debt crisis, and the stand-off over Ukraine, which has made it hard for exporters to secure orders.

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UK gross domestic product (GDP) grew by 2.6pc in 2014, outpacing other major world economies but falling short of earlier expectations. The rate of growth is expected to be overtaken by the US this year.

Katja Hall, the CBI's deputy director-general, said: 'UK growth continues to outshine its counterparts in Europe and progress is 'steady as she goes'.

'While lower oil prices are keeping costs down for businesses and consumers, the North Sea oil companies are suffering, harming jobs and investment in the industry.

'Now is not the time for complacency, but falling unemployment coupled with improving wage growth and rock bottom inflation should mean that people see more money in their pockets.'

The CBI's economic forecast for this year brings it into line with the International Monetary Fund's latest projection. The Bank of England forecasts growth of 2.9pc.

Last week the Bank said it expected inflation was 'more likely than not' to turn negative this spring - helping real terms take home pay this year to climb at its fastest rate in a decade.

Rain Newton-Smith, CBI director for economics, said: 'The UK is in good shape compared with other economies, with both investment and household spending underpinning economic growth. But there are still risks to exports from a shaky eurozone.'