CBI: Fragile economic recovery expected
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By Alistair Potter. |  |
Monday, 21, Dec 2009 10:41
By Sarah Garrod.
The economic recovery will continue to be fragile into next year, even though the UK is expected to exit the recession in this quarter.
The CBI said today it expected the UK recovery to slowly gather pace over the next two years, with growth remaining "subdued" and gross domestic product (GDP) unlikely to reach pre-recession levels by the end of 2011.
The business groups said it predicted the recession will end this quarter, buoyed by an increase in consumer spending before the level of VAT is returned to 17.5 per cent, from 15 per cent, on January 1st.
The CBI said subsequent growth in the first two quarters of 2010 will be weak at 0.3 per cent, but this should strengthen as the global economic recovery gathers pace, businesses rebuild stocks and household spending recovers. Growth in the range of 0.5 per cent to 0.7 per cent is expected to be maintained through to the end of 2011.
John Cridland, CBI deputy director-general, said: "The outlook is brightening as the global economy finds its feet, although we will need to keep our nerve during early 2010, and there is no sign of a clear driver of strong economic growth. In the spring many staff will face another cycle of wage freezes, and job losses will continue rising until the autumn.
"Although the first few months of 2010 will be difficult, growth will gradually pick up and increasing confidence and demand will lead the UK into a more positive 2011. Consumer spending looks to be slightly more resilient than we first thought, and a weaker pound will help to support export growth."
The CBI predicts UK GDP growth of 2.5 per cent in 2011, following 1.2 per cent in 2010.
Unemployment is expected to continue rising over the coming quarters, but peaking slightly lower than previously forecast, at just over 2.8 million in 2010 in the third quarter.
Household consumption is forecast to contract marginally by minus 0.2 per cent quarter-on-quarter in the first quarter of 2010, partly as sales fall back in response to the VAT rise. However, the CBI forecasts it should then grow steadily but very slowly over the remainder of 2010, to give a modest annual growth rate.
Ian McCafferty, CBI chief economic adviser, said: "The UK economy faces a number of structural hurdles over the coming two years, and this recovery - like that of the 1980s - will be relatively drawn out.
"Credit conditions will remain difficult as the banks slowly nurse themselves back to health, consumer spending will be shaped by the need to rebuild savings, and the public sector will soon have to tighten its belt. All three factors will act as headwinds to growth."