CBI slashes growth forecasts

The CBI slashed its growth forecasts for the economy today but called on the Chancellor to stick to his deficit-busting austerity measures.

The UK’s leading business lobbying organisation, which represents 240,000 employers, has urged George Osborne to boost growth by attracting £200 billion of private sector investment over five years, but wants the Government to continue with its spending cuts and tax reforms.

The group, whose members employ a third of the private sector workforce, made the recommendations as it cut its estimates for gross domestic product (GDP) growth to 0.9 per cent in 2011 and 1.2 per cent in 2012, down from 1.3 per cent and 2.2 per cent respectively.

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The revised forecasts fall below the 1.7 per cent in 2011 and 2.5 per cent for 2012 forecast by the Office for Budget Responsibility (OBR) at the time of Mr Osborne’s budget in March, although these are expected to be revised downwards at the end of the month.

The CBI said it had downgraded estimates after continued uncertainty in the eurozone, and the resulting weaker prospects for exports and investment, led to a marked drop in business and consumer confidence.

The CBI now forecasts quarter-on-quarter GDP growth to be flat in the final quarter of the year and 0.2 per cent in the first quarter of 2012.

However, the organisation said it was increasingly important for the UK to hold on to its coveted AAA credit rating amid the increased volatility.

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John Cridland, CBI Director-General, said: “The Government must stick to its plans to bring down the deficit to maintain confidence in the UK’s public finances and keep the cost of borrowing down, but now is the time to revitalise its growth strategy and create a ‘Plan A plus’.”

Ahead of the Autumn Statement, the CBI is urging the Government to consider a range of measures to help kick-start growth, at “little extra cost” to the Treasury.

The group’s proposals range from actions to boost investment in infrastructure, stimulate the housing market and improve the roads, to supporting energy-intensive industries, reforming the electricity markets and tackling youth unemployment.

Elsewhere in its latest quarterly economic forecast, the CBI predicts that unemployment will continue rising next year, peaking at 2.75 million the final three months of 2012.

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Inflation is expected to fall back from the first quarter of next year as this year’s VAT rise drops out of the equation, reaching the Bank of England’s target rate of 2 per cent in 2013.

Given the weaker prospects for domestic growth, the CBI expects interest rates will remain at their historic low of 0.5% throughout 2012, and start edging upwards only from 2013.

Total business investment is expected to grow by just 0.6 per cent in 2011, down from 3.7 per cent in the previous forecast, and 6.9 per cent in 2012, down from 9.3 per cent.

A Treasury spokesman said: “The British economy is continuing to grow and create jobs. The difficult decisions taken by the Government to tackle the deficit and rebalance the economy are providing a firm foundation for a sustainable recovery, but the scale of the challenge means that the recovery will be choppy.

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“As the CBI says, the UK is not immune from the conditions being faced by its trading partners. Uncertainty in the Eurozone is affecting growth in many countries and, as the Chancellor has said, the decisive resolution of the Eurozone crisis would provide the single biggest boost to the British economy this autumn.”

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