Britain’s economy is ‘picking up steam’ as households start to feel better off and drive growth, a new forecast from the Confederation of British Industry suggests.
The business group has upgraded its forecast for gross domestic product (GDP) growth this year from 0.8 per cent to 1 per cent and for next year from 1.6 per cent to 1.9 per cent, close to pre-Covid levels.
It is likely to be seized on by the Tories as evidence Rishi Sunak’s plan is working as the Prime Minister battles to overturn a huge Labour poll lead ahead of the General Election.
Falling inflation means household wages can stretch further and should open the door to a Bank of England interest rates cut in August, the CBI said.
It added: ‘The UK economy is picking up steam but more needs to be done to achieve sustainable growth.’
GDP grew by just 0.1 per cent for the whole of last year. But it bounced back with growth of 0.6 per cent in the first quarter of this year.
CBI lead economist Alpesh Paleja said: ‘On the cost of living, yes inflation is getting back to target and that’s very positive but the level of prices is still quite high.’
The Bank of England is under pressure to slash borrowing costs after European policymakers cut interest rates for the first time in five years.
City analysts said the European Central Bank has fired the starting gun on rate cuts, with all eyes now on the BoE and the U.S. Federal Reserve ahead of meetings this month.
Central banks raised rates to control spiralling prices in the wake of Russia’s invasion of Ukraine.
Cooling price growth allowed the ECB to cut rates from 4 per cent to 3.75 per cent.
Eurozone inflation has fallen to 2.6 per cent from a peak of 10.6 per cent in October 2022, although it has risen from 2.4 per cent in April.