Don't send recovery off course

Political uncertainty surrounding next year’s general election could derail a fragile recovery in business investment, the Confederation of Business Industry has warned.

While business optimism was finally translating into investment in IT, advertising and research, Katja Hall, the CBI’s chief policy director, said political tensions during the build-up to the 2015 election were a potential “mood killer” for investment, reports The Telegraph.

“We’re now entering what is a pretty long election campaign … and our members are concerned that the political uncertainty could be a real mood killer when it comes to firms deciding whether or not to make big investment decisions,” she said. “It’s definitely on the agenda of board meetings.”

Sir Mike Rake, president of the CBI, warned last month that “politically motivated” anti-business policies by Labour leader Ed Miliband risked holding back the recovery.

The business lobby group called on MPs to follow-through on pledges to improve infrastructure, as well as implementing “pro-enterprise” and “pro-business” policies that would ensure the recovery remained “rooted”.

The CBI now expects UK growth of 2.6pc in 2014, up from its forecast of 2.4pc in November. It said strong consumer spending, which has underpinned Britain’s recovery, would be supported by a long-awaited return of business investment, as well as a modest recovery in exports.

“The UK does seem to be more firmly on the road to recovery,” said Anna Leach, head of economic research at the CBI.

It expects business investment to grow 6.6pc this year, from a contraction of 3.7pc in 2013. However, investment remains 25pc below the pre-crisis peak, and is expected to be 9pc down by the end of 2015.

The CBI does not expect the Bank of England to raise interest rates until the third quarter of 2015, amid lower inflation and “considerable” slack in the economy. Ms Leach said better pay rises would help to underpin the recovery, with real wage growth expected to return in the second quarter of this year.