One of the UK's foremost business groups has upgraded its economic growth forecast for this year and next, with exports offsetting weakening domestic demand.

UK exports at a 22-year high

The Confederation of British Industry's (CBI) Industrial Trends Survey also found that manufacturers’ total order books had climbed to their highest level since August 1988, with export orders also improving to a 22-year high, primarily as a result of the fall in the value of sterling against both the dollar and the euro, as well as an improving global economy.According to the organisation's latest forecast, the UK economy will grow at 1.6 per cent this year and 1.4 per cent in 2018, compared with its previous predictions of 1.3 per cent and 1.1 per cent respectively.But the CBI said that the upgrade was mainly due to higher-than-expected growth in the latter half of 2016. "The CBI’s view of the outlook for the UK economy remains largely unchanged; domestic demand is expected to play less of a role in driving growth, as further falls in real earnings bear down on household spending and heightened uncertainty weighs on business investment."But net trade is set to emerge as a steadier driver of growth, as exports are lifted by the lower pound and a solid global economic backdrop, and softer domestic demand bears down on imports."The survey found that, while output growth had slowed recently, it remained strong and was expected to rebound over the next quarter. Meanwhile, firms’ expectations for output price inflation remained high in the wake of the consumer price index (CPI) accelerating to 2.9 per cent last month.

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Demand continues for products made in Britain 

Rain Newton-Smith, CBI chief economist, said, "Britain's manufacturers are continuing to see demand for Made in Britain goods rise with the temperature. Total and export order books are at highs not seen for decades, and output growth remains robust."To build the right future for Britain's economy, manufacturers and workers, the government must put the economy first as it negotiates the country's departure from the EU. This approach will deliver a deal that supports growth and raises living standards across the UK."Howard Archer, chief economic adviser to the EY Item Club, described the CBI forecast as "highly encouraging". He added, "This points to healthy domestic demand despite concerns of a stuttering UK economy. Export orders are at a 22-year high, clearly benefiting from a weakened pound and strong global growth."Andrew Wishart, UK economist at Capital Economics, added, "The strength of June's CBI Industrial Trends Survey suggests that the weakness in the manufacturing output in the hard data should prove to be a blip. [The] strong survey supports our view that solid manufacturing and export growth will help to offset the slowdown in consumer spending growth this year."

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