The CBI has downgraded its forecasts for UK growth for this year and next, although it said the national economy remained resilient in the face of wider fears for global expansion.
The employers’ group now expects growth in 2015 to be 2.4 per cent, rather than 2.6 per cent, and in 2016 2.6 per cent, rather than 2.8 per cent.
It said this was a reflection of weaker investment growth, and was prompted largely by recent revisions to official data.
The main risks to the UK economy remained global — in particular further financial instability in China.
“The UK economy remains a steady ship in choppy global waters,” said Rain Newton-Smith, CBI economics director. “But the risks have tilted to the downside.”
Absence of a recovery in productivity remained a key risk to UK growth, said the CBI.
Steve Varley, chairman of EY, the consultancy sponsoring the CBI’s annual conference on Monday, said companies’ top concerns were the search for “good quality” growth opportunities; the skills shortage, particularly in IT; and the decision over whether to invest in capital spending or in staff.
He said this decision had been made more difficult by the mandated rise in the minimum wage — renamed the National Living Wage by George Osborne, the chancellor.
A separate business outlook survey, conducted by Markit financial information, found that confidence had slipped to its lowest level in almost three years, buffeted by the global slowdown, sterling’s strength and worries about the outcome of the UK’s planned EU referendum.
Although UK companies remained more than upbeat about their outlook compared with their US, eurozone and Chinese counterparts, their expectations about business activity over the next 12 months had been scaled back.
The survey, conducted over the last two weeks of October, found the balance of business activity expectations across the manufacturing, service and construction sectors at 50 per cent, the lowest since February 2013.
“The UK outlook has dimmed somewhat compared to the highs experienced through 2014 and the first half of 2015,” said Trevor Balchin, Markit’s chief economist.
He said the global economic slowdown linked to China’s weakness malaise, the general vulnerability in emerging markets and lacklustre euro area recovery had been weighing on business expectations, despite confidence in the UK economy.
“The strong pound and uncertainty over EU membership have also been cited as threats to growth,” added Mr Balchin.
The CBI’s Ms Newton-Smith said skills shortages remained “top of our members’ concerns”.
However, a separate report published on Monday described recent warnings on skills shortages as overblown.
The Chartered Institute of Personnel and Development, the professional body for human resources, surveyed 1,000 employers and concluded that only 15 per cent of job vacancies were hard to fill.
The CIPD said that while there were “acute” shortages in a few areas, such as construction, employers were generally still able to find workers, even though unemployment had dropped to 5.4 per cent — the lowest level since 2008.
“It seems that Armageddon warnings about the UK facing a skills shortage crisis understate the ability of many employers to ease their recruitment problems,” said Gerwyn Davies, labour market analyst at the CIPD.
Many employers had adapted to the tighter labour market by hiring more young people and migrant workers, as well as by teaching new skills to existing staff.
The number of applicants per vacancy has held steady over the past year, with roughly 25 applications for each low-skilled role, 15 for each medium-skilled role and eight for each highly skilled one, according to the CIPD.
Because the organisation thinks workers are not in short supply, it does not expect wage growth to pick up significantly. The employers in its survey are predicting median basic pay rises of 2 per cent in the year to September 2016.
The Bank of England is more optimistic: it forecast last week that average annual wage growth would pick up from its current 2.8 per cent to about 3.8 per cent next year. However, that would still be lower than the pre-crisis average of about 4.3 per cent.
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