The CBI has improved its forecast for UK growth for 2015 in light of falling oil prices and predictions of drooping inflation.
Last week, the Bank of England said inflation would drop into negative territory this Spring, before recovering to 0 per cent in Q2 and Q3.
Low oil prices will feed through to lower operating costs for companies, and generate space for investment, the CBI says.
It now forecasts growth of 2.7 per cent for 2015, up from 2.5 per cent in its November forecast, while the the trade body estimates growth of 2.6 per cent for 2016.
Business investment is expected to rise by 5.8 per cent this year and 6.5 per cent in 2016.
However, volatility in the EU generated by Greece’s fiscal position and the ongoing Ukraine crisis risks undermining positivity by harming export performance, the CBI warns.
CBI deputy director-general Katja Hall says: “Now is not the time for complacency, but falling unemployment coupled with improving wage growth and rock bottom inflation should mean that people see more money in their pockets.
“But businesses are looking on anxiously as insecurity continues to troll the Eurozone and instability remains elsewhere.”
CBI economics director Rain Newton-Smith adds: “With finance ministers from across the bloc meeting today, it is vital that they reach a new deal on the bailout programme for Greece to give businesses the certainty they crave around prospects in the Eurozone.
“Sterling’s recent high against the Euro also adds to the challenges for manufacturing securing further export orders.”
The CBI expects some improvement in exports ahead, with growth increasing from 2.9 per cent this year to 5.5 per cent in 2016.
However, it says this will nonetheless weigh on manufacturing output, which it forecasts to improve slowly, from 1.5 per cent in Q1 2015 to 1.8 per cent by the end of 2016.