UK’s economic recovery slower than expected

Government belt tightening will mean the pace of economic recovery in the UK will be slower next year than previously forecast, the CBI has warned.

The business group downgraded its gross domestic product (GDP) forecast for 2011 to 2.0%, from 2.5% in its last forecast in June.

It said the revision took into account a weaker outlook for consumer spending next year as households will have less disposable income due to ongoing high inflation, resulting from January’s VAT rise, and modest wage increases.

The CBI’s previous estimates were made before Chancellor George Osborne announced his deficit-busting cuts in the June emergency Budget.

But the group’s latest forecast was not all doom and gloom, with growth forecasts for this year revised upwards to 1.6% in 2010, from 1.3% in June.

The slight upward revision reflects better than expected growth in the second quarter of this year as companies began rebuilding their stocks, the CBI said.

It also believes the UK is likely to avoid slipping into a double dip recession.

Richard Lambert, CBI director-general, said: “The degree of uncertainty around the outlook remains high, but our view is that the UK’s tentative recovery will be sustained, albeit with weaker levels of growth.

“The fragile nature of the recovery is why, in the forthcoming spending review, the Government must focus its scarce resources on those areas which most galvanise growth, namely infrastructure and capital investment.”

The CBI has forecast consumer spending growth of 0.9% in 2010, followed by 1% in 2011.
Source: Press Association

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