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Independence poll and Labour 'threaten growth'

POLITICAL risks, including the independence referendum and the prospect of a Labour Government at Westminster, threaten the increased business investment that is expected to fuel a pick-up in the economy this year, the Confederation of British Industry has claimed.

After a stronger-than-expected close to 2013, the CBI has upped its forecasts for economic growth in 2013 to 2.6%, up from 2.4% three months ago. It expects 2.5% growth in 2015.

But economists at the business lobby group anticipate an 18-month wait until base rates rise due to the amount of slack in the economy and the jobs market.

CBI director-general John Cridland said: "We are starting to see signs of the right kind of growth. In our view this is not a debt-fuelled, housing bubble-led recovery - our forecast shows encouraging signs that business investment and net trade are starting to play their part."

The CBI estimates that business investment will increase at the fastest rate since 2007 in the next two years but political factors are seen as the main risk to this.

CBI chief policy director Katja Hall said: "Our members are concerned that political uncertainty could be a real mood killer when firms come to make investment decisions in the year ahead."

Among the concerns are the Coalition Government's ability to carry out its plans, Labour's attitude towards business, a future referendum on European Union membership and September's independence vote.

Ms Hall said of the Scottish referendum: "It is a factor of uncertainty. It is probably being discussed in board meetings. Companies are thinking about how best to take it into account in what they do."

The CBI backs a "no" vote.

Hitherto the economic recovery has been driven by rising consumer spending. The CBI believes this will slow.

In its place business investment growth will rise from -3.7% in 2013 to 6.6% this year and 8.3% in 2015, it predicts. But by this point investment will still be 9% below the pre-crash peak.

Export growth is expected to rise from 1% in 2013 to 3.6% in 2014 and 4.7% in 2015.

The organisation also expects long-muted real wage growth to turn positive in the second quarter of 2014.

But it only has a 25 basis point rise in base rates pencilled in for the third quarter of 2015.

Anna Leach, head of the economic analysis team at the CBI, said: "With all the slack in the economy, the UK is in a good position to maintain these growth rates without tightening monetary policy."

The OECD said yesterday that economic growth is "firming" in the UK.

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