By Andy Bruce
MANCHESTER, England, Dec 12 (Reuters) – The Confederation of British Industry on Friday bumped up its economic growth forecast for next year, citing a temporary boost to government spending following the budget, while warning that deep-rooted problems remain.
The business association predicted the economy will grow 1.3% next year, up from its previous forecast of 1.0% in June, bringing the CBI broadly into line with forecasts from the International Monetary Fund and the OECD.
It raised its forecast for this year to 1.4% from 1.2%, reflecting upward revisions to recent official data.
“While it’s welcome to see our growth forecast upgraded for next year, the mood music reads more ‘cautious optimism’ than ’cause for celebration’,” CBI chief economist Louise Hellem said.
Finance minister Rachel Reeves announced a big tax-raising budget on November 26 that will take more money from workers, people saving for a pension and investors to give herself greater room to meet her deficit-reduction targets and, to a lesser extent, fund higher welfare spending.
“There is nothing that gives a lasting impetus to investment and growth,” Hellem told reporters about the budget plans. “Overall it was a budget very much focused on stability rather than growth.”
The CBI sees consumer prices rising by 2.6% next year, slightly more than the Bank of England forecast last month.
That will leave the central bank with room to cut interest rates only twice more, with quarter-point moves next week and in early 2026 taking rates down to 3.5% from 4%, the CBI said.
“This would leave policy in a modestly restrictive stance, consistent with our view that inflation will remain a little above the Bank’s 2% target through 2027,” the CBI said.
The latest Reuters poll consensus of economists shows a slightly lower terminal rate of 3.25% for the BoE.
(Reporting by Andy Bruce; editing by David Milliken)
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