U.K. Outlook Raised by CBI as Construction Strengthens: Economy

The Confederation of British Industry raised its forecasts for U.K. economic growth and said business investment and trade will aid the recovery starting next year.

The business lobby sees the economy expanding 1.4 percent this year and 2.4 percent in 2014, it said in a quarterly report. That’s up from 1.2 percent and 2.3 percent in August. The projections came as a survey from Markit Economics showed construction unexpectedly strengthened in October to the fastest rate in six years, led by homebuilding.

“The recovery won’t be spectacular, just slow and steady, but appears more solid and better-rooted,” CBI Director-General John Cridland said. “We’re also expecting business investment to pick up over the next two years and beyond, and net trade will begin to make a stronger contribution to growth.”

U.K economic growth accelerated to its fastest pace in more than three years in the third quarter as the recovery continued across all main industries. The Bank of England may raise its forecasts this month and bring forward its projection for when unemployment will reach a 7 percent threshold that will prompt policy makers to consider an interest-rate increase.

BOE Governor Mark Carney has said he plans to keep the benchmark rate at a record low at least until joblessness falls to that level, which the central bank doesn’t see happening until late 2016. The CBI, which holds its annual conference in London today, said unemployment will fall to 7.2 percent by the end of 2015 from its current 7.7 percent.

Construction Growth

Markit said its index of construction activity rose to 59.4 in October from 58.9 in September. The median forecast of 15 economists was for a decline to 58.7. The gauge has been above the 50 level that divides expansion from contraction since May.

The improvement boosted hiring, with payrolls rising at the fastest pace in six years, Markit said. While housing growth cooled from its fastest in almost 10 years, it remained the strongest sector. Civil engineering and commercial activity were “robust,” it said.

Homebuilder Bellway Plc said on Oct. 15 that its annual profit rose 37 percent as it benefited from the government’s Help to Buy initiative. The measure is aimed at helping people to buy homes with small deposits, and Bellway said that demand “remains strong in most areas of the country.”

The government program is also boosting house prices and has faced criticism that it may fuel a property bubble. Nationwide Building Society said on Oct. 31 that values rose 1 percent in October from the previous month and were up 5.8 percent from a year earlier.

Manufacturing Growth

U.K. manufacturing expanded for a seventh month in October as overseas demand grew, Markit said last week. Services also expanded last month, economists said before a report tomorrow. An index of activity slipped to 60 from 60.3 in September, according to the median of 30 estimates in a Bloomberg survey.

Two days later, the Bank of England will announce its latest monetary-policy decision. It will keep the benchmark rate at 0.5 percent, while the bond-purchase plan will stay at 375 billion pounds ($599 billion), according to Bloomberg surveys.

The CBI said GDP growth will slow to 0.5 percent in the current quarter after expansion of 0.8 percent in the three months through September partly due to the “volatility of trade and investment data.” Annual growth will accelerate to 2.6 percent in 2015 as household disposable income and business and housing investment increase, it said.

“Our forecast is for the unemployment rate to fall back only gradually, as hours worked increase and productivity begins to recover,” the CBI said. “Our central expectation is that interest rates will remain on hold out to the end of 2015.”

Separately, 37 percent of companies surveyed in Ernst & Young’s U.K. capital confidence barometer published today said they expect to make acquisitions in the next 12 months, compared with 26 percent a year ago. Ernst & Young said it surveyed 1,600 senior executives for the bi-annual poll.

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