'Sun shining on UK economy' but China turbulences could hit trade, CBI warns


UK growth picked up pace in the three months to August but the economy faces risks from the knock-on effect of turbulence in China, the CBI said.

A survey of 754 firms showed the rate of expansion heading higher for the second month running with expectations for the next three months also buoyant.

It said the gap between firms reporting output volumes higher and those saying they were lower stood at a positive balance of 31%, up from 20% in the three months to July and the best rate since May.

The balance of firms expecting growth in the next three months was unchanged from July at 27%.

Rain Newton-Smith, CBI director of Economics, said: "The weather may have been a washout this month, but the sun has certainly been shining on the British economy.

"The pace of growth has been energised across the sectors, and it is good news that this is set to continue as we head into the autumn."

Business and professional services - including accountancy, law and marketing firms - as well as retail made particularly large contributions though growth in manufacturing remained broadly flat, the CBI said.

"While the overall domestic picture is looking bright, exporters still face a challenge, especially in light of a weaker outlook for global growth and the strength of sterling making them less competitive," said Ms Newton-Smith.

She also pointed to risks from China, where fears of a slowdown in the pace of rapid economic growth has set off convulsions in global markets.

"Businesses will need to keep a close eye on turbulence in the markets, and whether it spills over into the real economy.

"The UK's direct exposure to China is limited, but slower growth there and in other emerging markets has a knock-on impact on confidence around the globe, and could bear down on UK trade."

The CBI said: "The latest data are consistent with our view that the outlook for the domestic economy remains solid in the second half of the year."

Last week the CBI upgraded its growth forecast for the UK from 2.4% to 2.6% this year and from 2.5% to 2.8% in 2016 saying the upturn would be powered by the "twin engines" of rising household spending and robust business investment.

On Friday the Office for National Statistics (ONS) confirmed an initial estimate that gross domestic product (GDP) rose by 0.7% in the second quarter, up from 0.4% at the start of the year.