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CBI says growth still low but no recession
A leading business body has again slashed the UK’s growth forecasts but believes the economy will narrowly avoid another recession.
The CBI downgraded 2012 growth prospects for the fifth time amid the worsening eurozone debt crisis and now expects GDP to increase just 0.9 per cent, down from the 1.2 per cent growth it forecast as recently as November. Its prediction for 2013 was also lowered to a modest 2 per cent from 2.2 per cent.
Although growth will remain subdued and conditions tough, it thinks the UK will avoid an official recession – two quarters of declines in a row – as it bounces back from its 0.2 per cent fall in the final quarter of 2011 with growth of 0.2 per cent in the first three months of this year.
And households suffering their longest squeeze in living standards for a generation will receive some much needed relief as the consumer prices index (CPI) rate of inflation continues to fall from its 5.2 per cent peak in September. Inflation is expected to drop to 2.2 per cent in the final quarter of the year and will remain close to the Bank of England’s 2 per cent target throughout 2013.
However, with unemployment rising to 2.9 million in the first quarter of 2013 – higher than its previous estimate of 2.75 million – inflation will still outstrip modest wage growth.
Nonetheless, the falling inflation will allow consumer spending to pick up slightly in the second half of the year.
The CBI thinks that as the economic recovery continues, the Bank of England will increase interest rates from their record low of 0.5 per cent in the final quarter of 2013 but expects no further emergency quantitative easing.
The CBI predicts growth will gather pace in the second half of the year, hitting 0.6 per cent in the third quarter but will remain fragile because of the eurozone crisis.
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