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CBI Upgrades U.K. 2014 Growth Outlook

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The U.K.'s leading business group on Tuesday upgraded its growth projection as the economy is set to gain strength from business investment amid low borrowing cost and net trade poised to pick up this year.

Nonetheless, the Confederation of British Industry expressed concerns about political uncertainty as the nation enters a lengthy election campaign.

The business lobby projects 2.6 percent growth this year, up from its November forecast of 2.4 percent, which reflects a stronger-than-expected economic performance at the tail end of 2013.

For 2015, the CBI estimates 2.5 percent expansion, but slightly down from 2.6 percent forecast in November. The projections are broadly in line with estimates of wide range of forecasters.

Quarter-on-quarter, gross domestic product growth of 0.6 percent is expected this year, and quarterly growth rates of around 0.6 percent to 0.7 percent in 2015.

According to CBI, business investment will make a positive contribution to growth this year, rising at the fastest rate since 2007. After declining 3.7 percent in 2013, business investment is expected to grow 6.6 percent this year and 8.3 percent in 2015.

"We are starting to see signs of the right kind of growth," John Cridland, CBI Director-General, said.

Net trade is also expected to play a small role in supporting growth this year and next. Export growth is projected to rise to 3.6 percent in 2014, and 4.7 percent in 2015.

The CBI forecasts unemployment to have already reached the Bank of England's 7 percent threshold in the fourth quarter of 2013. The jobless rate is expected to drop further to 6.8 percent in 2014 and 6.6 percent by the end of 2015.

The group sees no prospect of an interest rate rise until the third quarter of 2015 when it is forecasting the first 0.25 percentage point increase.

Further, on the property market front, the CBI repeated its call for measures to increase housing supply. House price inflation is forecast to rise by 6.3 percent this year and 5.2 percent next year.

The strength in consumer spending is estimated to slow somewhat this year as improvements in confidence are unlikely to sustain, the group said. However, average earnings growth will gradually outpace consumer price inflation, supporting a more solid foundation for consumer spending going forward.

Elsewhere, a report from the British Retail Consortium said online sales growth in January was the strongest since early 2009.

Online sales of non-food products grew 19.2 percent in January from a year earlier, when they were up by 13.5 percent. Online sales represented 17.4 percent of total non-food sales.

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