U.K. employers raise growth outlook

Economy to expand by 2.6 per cent in 2015, 2.8 per cent in 2016

LONDON, U.K. (Reuters) — Britain's economy will grow more strongly than previously thought this year and in 2016, an industry group said on Monday, as it also brought forward its prediction for the timing of Britain's first rate hike in over seven years.

The economy will expand by 2.6 per cent in 2015 and 2.8 per cent in 2016, the Confederation of British Industry said, up from forecasts of 2.4 and 2.5 per cent it made in June.

The CBI said a pick-up in household spending and investment, would more than offset a drag from foreign trade.

Against this backdrop, and in light of more hawkish comments from Bank of England officials recently, the CBI said it expected a rate rise in the first quarter of 2016 rather than in the second quarter, as it had previously expected.

"We’re encouraged by the twin engined-growth of household spending, spurred by stronger wage increases and low inflation, buttressed by business investment,"John Cridland, CBI Director-General, said.

He added that there were tentative signs that productivity was picking up.

"But the outlook on exports is somewhat muted," Cridland said.

A rise in sterling and continued weak demand from the euro zone has weighed on Britain's trade balance this year and left the economy heavily reliant on consumer spending. The government wants to see more investment in manufacturing to ensure the recovery is sustainable.

A separate survey conducted by EEF, a manufacturers' association, painted a mixed picture of the sector's outlook.

The number of companies engaged in product innovation this year rose to 64 percent from 59 per cent in 2014. But for a second year in a row, manufacturers were increasingly worried about falling behind foreign competitors on innovation, something Britain spends less on than many other big economies.

The Bank of England has said it is watching to see if a nascent recovery in British productivity offsets the inflationary impact of rising wages. Most economists expect the BoE to start raising interest rates in early 2016.

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