Manufacturers face ‘dark cloud of uncertainty’: CBI

Deterioration in the global economic outlook, including weaker prospects for China and other emerging markets, continued to represent major challenges to the UK economy, the CBI claimed.

Uncertainty ahead of the EU referendum is also starting to weigh on investment plans, the business group added.

The CBI’s central economic forecast was carried out on the basis of the UK current membership of the EU.

The news will come as a blow to the food and drink industry, which accounts for 16% of total UK manufacturing turnover. Annually, it adds £21.5bn to the UK economy, making it the largest manufacturing sector in the UK, according to latest figures from the Food and Drink Federation.

Latest quarterly forecast​

The CBI’s latest quarterly forecast predicted that the UK’s gross domestic product (GDP) would grow by 2.0% in both 2016 and 2017, both of which are downgrades from its last forecast in February (2016: 2.3%, 2017: 2.1%).

The economy had a softer than expected start to the year, which has contributed to a large part of the downgrade in GDP growth in 2016.

CBI director-general Carolyn Fairbairn said: “We expect the UK’s growth path to continue but it is likely to be at a slower rate than previously thought.​

“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.​

“At present, the economic signals are mixed – we are in an unusually uncertain period.”​

Interest rate rise​

The CBI believed that the timing of a first rise in interest rates would now be in the second quarter of 2017 (rising to 0.75%) against the backdrop of slower growth.

Investment spending was expected to ease in the near-term, amid some signs that referendum uncertainty was bearing down on plans for capital spending.

However, a recovery in investment was expected in the second half of 2016, and that business investment would account for around a quarter of growth in 2016, and a third in 2017.

Once again, net trade was not expected to provide much support to growth. While the CBI expected a smaller drag in 2016, down 0.2 percentage points (ppts) relative to February (down 0.5ppts), this mostly reflected a larger downgrade to import growth rather than much of a recovery in exports.

On the international front, growth in advanced economies should continue at a steady, if subdued, pace over the next couple of years, with the forecast for US growth at 2.0% in 2016 (from 2.4% in 2015), rising to 2.3% next year.

The recovery in the Eurozone should pick up a little further, with GDP growth forecast at 1.6% in 2016 (from 1.5% in 2015). And while growth in China (6.5%) and India (7.4%) will outperform the advanced economies over the next two years, prospects for the rest of the emerging world remained weak and commodity exporters would feel the hit from low prices, the CBI claimed.