Business investment to fall for the rest of 2019, CBI cautions

The Confederation of British Industry (CBI) published its Economic Growth Forecast which indicated that business investment has been weakened as a result of Brexit uncertainty. 

The UK’s business trade body noted that its predictions of 1.4 per cent in 2019 and 1.5 per cent GDP growth in 2020 was dependent on an orderly Brexit. 

While it said that living standards will remain reasonably firm over the forecast period, the CBI cautioned that business investment will fall for much of the rest of this year (-1.3 per cent in 2019, 0.9 per cent in 2020). 

The CBI explained that its forecast does foresee a gradual resumption of capital spending projects, but that nonetheless, growth in business investment will remain modest on the back of uncertainty around the end state of the UK-EU relationship.

"Brexit uncertainty is crippling business investment, which we expect to fall at the fastest pace since the financial crisis this year. It’s crystal clear that without a Brexit deal by October, we’re at risk of falling further behind our G7 competitors," warned CBI chief economist Rain Newton-Smith.

In regard to monetary policy, CBI said it expects two rate rises in 2020, of 25 basis points each. 

Looking ahead, it noted that a no deal Brexit remains the biggest risk to the outlook, but that the UK must not lose sight of the other challenges, particularly the persistent weakness in productivity. 

"Fixing this should remain a focus for both government and business – for example, by enabling more effective adoption of new technologies," said Alpesh Paleja, CBI principal economist.