By Richard Johnstone | 3 May 2012
The UK economy will not emerge from recession and start growing again until the second half of this year, the CBI predicted today.
The business lobby cut its forecast for growth in 2012 from 0.9% to 0.6% after the Office for National Statistics revealed last week that the economy has gone back into recession. Gross domestic product shrank by 0.2% in the first quarter of 2012, the second consecutive contraction.
The CBI’s quarterly economic forecast states that growth will be flat in the second quarter of this year, between April and June, but expectations for the third and fourth quarters remain unchanged, at 0.7% and 0.5% respectively. It also predicts that growth in 2013 will hit 2%.
The first quarter contraction also means that the Office for Budget Responsibility's target for public sector borrowing in 2012/13 is likely to be exceeded.
Following Chancellor George Osborne’s Budget on March 21, the OBR forecast that borrowing would be £120bn in the current financial year, but the CBI has said it will now be £6bn–£8bn higher.
The report also predicted that the Consumer Prices Index measure of inflation will remain ‘somewhat higher’ than expected this year, but should fall from the current 3.5% towards the Bank of England’s 2% target by next spring.
Ian McCafferty, CBI chief economic adviser, said that the economy has been ‘bumping along the bottom’ over the winter, which was ‘likely to stay that way until summer’.
He added: ‘Nevertheless, business surveys suggest that underlying conditions are starting to improve, and that we should see more momentum in the second half of the year.
‘Although inflation has been higher than expected, we believe that it should continue to fall towards the Bank’s target of 2% by the spring of next year. This will help lift some of the squeeze on household incomes and boost business confidence.’
CBI director general John Cridland said that despite last month’s disappointing GDP estimate, optimism among businesses had been increasing since the turn of the year, with manufacturing demand holding up.
He added: ‘That said, the global economy continues to pose a number of significant challenges. Concerns over eurozone stability are on the rise again, oil prices remain high and confidence among businesses and households are still fragile.’
