The CBI today revised down its forecast for the UK economy this year from plus 0.6% to minus 0.3% but said growth should return to towards the end of the year.
In its latest quarterly economic forecast released today, the influential business lobbying organisation also said there will be “a little pick up” in the pace of economic growth next year.
The sharp downgrade in its 2012 outlook reflects a more negative first half-year and a more modest rate of growth in the second half than was expected in May when it made its last forecast.
The CBI expects some improvement in GDP (gross domestic product) growth towards the end of this year with a bounce-back from the Jubilee effect and inflation falling a little further. In the third quarter of 2012, quarter-on-quarter growth is expected to be plus 0.6%, followed by plus 0.2% in the final three months.
In 2013, the CBI forecasts GDP growth of plus 1.2%, revised down from its previous forecast of plus 2%, mainly reflecting a smaller contribution from net trade, given a weaker rate of global growth than previously forecast. It said the risks for this forecast were on the downside given on-going global uncertainty.
Heavy discounting by retailers and a sharp fall in world commodity prices has led to a faster-than-expected drop in the rate of inflation. Combined with weak wage growth, inflation is expected to fall back a little further by the end of the year, and should remain close to the Bank of England’s 2% target throughout 2013, the CBI said.
The rapid fall in inflation means the pressure on household spending is easing faster than previously thought, despite wage growth remaining weak. During 2013, real disposable incomes should begin to rise for the first time since 2010. This should give something of a modest boost to consumer spending, although households are likely to remain cautious given the relatively weak labour market.
CBI director-general John Cridland, pictured, said: “At present I believe the economy is flat rather than falling but, nonetheless, momentum seems to have weakened and the latest official figures put the UK in recession for the second quarter of this year.
“Underlying growth will return to the economy later in the year than previously expected, with a somewhat better outlook next year.
“However, euro area uncertainty, and the looming “fiscal cliff” of spending cuts and tax increases in the US will only add to the sense of unease during the coming months.”
The CBI does not expect unemployment to increase by as much as previously thought, peaking at 2.7m in mid-2013.
