CBI ups its forecasts for growth

BRITAIN'S biggest business group, the CBI, today raised its 2004 economic growth forecast for the second time in six months as it said the fledgling recovery in the manufacturing sector is gathering pace.

Manufacturers' order books this month were at their fullest for three years with exports up on a year ago despite the pound's recent surge against the US dollar.

The CBI believes gross domestic product growth this year will now be 3%, against its forecast of 2.8% in November and 2.4% in August.

Chancellor Gordon Brown is hoping for growth of between 3% and 3.5%. CBI chief economist Ian McCafferty said: 'The economy should grow robustly this year and next as exports benefit from the gathering momentum in the global recovery.'

The figures come a day after National Statistics raised the annual growth-rate figure for 2003 to 2.3% from its earlier estimate of 2.1%.

The one sour note for Brown today came with fresh signs of the tough decisions he faces on public spending, given the amount he is borrowing to fund the Government's services drive.

The CBI said that borrowing between April 2003 and January 2004 was 97% of that expected for the whole fiscal year. It now believes a total of £37.9bn will be borrowed.

'Budget surpluses in 1999 and 2000 mean the Chancellor should just meet his golden rule of balancing the budget over the economic cycle,' it added. 'But the Treasury will begin the next cycle from 2006 without similar surpluses, suggesting it may face unpalatable choices in future.'

Analysts welcomed the CBI data but stressed it was simply catching up with bullish GDP growth forecasts already made by the Treasury and the Bank of England.

Ciaran Barr, chief UK economist at Deutsche Bank, said: 'People are definitely getting more confident about growth this year. The big worry is about inflation and whether this will feed through to interest rates.'

The Bank of England's rate-setting committee raised rates to 4% this month and is due to meet next week to set the cost of borrowing for March. The CBI predicts rates will end the year at 4.5% and peak at 5% in 2005.

The CBI said manufacturers were benefiting from rising demand at home and abroad. Out of 929 manufacturers, 30% said orders were below normal and 15% said they were above normal. The balance of minus 15% is the highest since January 2001. The balance on exports was minus 22%, 'significantly better' than last year.