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U.K. Growth Forecasts Raised by CBI as Recovery Builds

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Aug. 19 (Bloomberg) -- The Confederation of British Industry raised its forecasts for U.K. economic growth this year and next as business and consumer confidence strengthens and credit conditions improve.

The business lobby’s quarterly forecasts see the economy expanding 1.2 percent this year and 2.3 percent in 2014. That’s up from 1 percent and 2 percent projected in May. The London-based group also said today that unemployment -- which the Bank of England has set as the key indicator for its guidance on policy -- will fall to 7.6 percent next year after staying at its current 7.8 percent in 2013.

“The economy has started to gain momentum and confidence is picking up, but it’s still early days,” said CBI Director-General John Cridland. “We need to see a full-blown rebalancing of our economy, with stronger business investment and trade, before we can call a sustainable recovery.”

Services, manufacturing and construction indexes all rose last month, while jobless claims fell twice as much as forecast by economists, suggesting Britain’s recovery is gaining momentum. Bank of England Governor Mark Carney said earlier this month that he plans to keep the benchmark interest rate at a record low at least until joblessness falls to 7 percent.

The CBI expects household spending to strengthen in the second half of this year and through 2014, with a stable labor market and slowing inflation helping to shore up incomes. It also said the Bank of England’s forward guidance will help boost business and consumer confidence.

While the recovery is gathering pace, the economy needs to rebalance through increased business investment and trade to ensure a “sustainable recovery,” it said.

“We hope that will begin to emerge next year, as the euro zone starts growing again,” Cridland said. Business investment is forecast to grow 7.3 percent in 2014 after falling 2.8 percent in 2013, according to the CBI.

The euro area, the U.K.’s biggest trading partner, emerged from a record-long recession in the second quarter, expanding for the first time since 2011.

To contact the reporter on this story: {Svenja O’Donnell} in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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