Slow recovery won’t gather much speed in 2011 - CBI

In its latest economic forecast, the Confederation of British Industry cut its growth forecasts slightly, saying public spending cuts, high inflation and tight household finances will lead to “patchy and slow” growth during 2011 and 2012.

“The recovery continues to be choppy and lacking in vigour,” said CBI chief economic adviser Ian McCafferty. “What remains striking is how little we expect the pace of growth to accelerate in 2012.”

The CBI sees GDP growth this year of 1.7 per cent, lower than its previous forecast of 1.8 per cent and in line with an estimate from the Government’s fiscal watchdog, the Office for Budget Responsibility (OBR).

The lobby group expects 2.2 per cent growth next year, down from its 2.3 per cent forecast in February and less optimistic than the OBR’s 2.5 per cent estimate.

Quarterly growth will run at 0.6 per cent for the rest of the year and at 0.5 per cent for much of 2012, the CBI forecast. That compares to a preliminary official estimate of 0.5 per cent growth in the first quarter.

Rising net exports and business investment are expected to fuel the recovery, but the economy faces a number of challenges, the CBI said.

“The economy is battling headwinds of squeezed household budgets, weak wage growth, high inflation and necessary public spending cuts,” said CBI Director-General John Cridland. “Domestically it may not feel like much of a recovery.”

Consumer price inflation - running at double the Bank of England’s 2 percent target - will fall back next year and interest rates are unlikely to rise from a record low of 0.5 per cent until the third quarter of 2011, the CBI said. Rates could reach 2.5 per cent by the end of 2012, it said.