CBI: recovery to take years

The recovery in the UK economy is expected to remain sluggish during 2010, and will not pick up much pace until the middle of next year, the CBI said today.

In its latest economic forecast, the CBI expects growth prospects for the economy will be fragile in the near-term now that certain stimulus measures, such as the VAT cut and car scrappage scheme, are ending.

Growth in consumer spending will remain subdued this year, as people save more and worries about job security persist.

The economy is expected to grow in the first two quarters of 2010, by 0.3% and then 0.4% respectively, and by a slightly faster 0.5% in the next two quarters. As global demand, consumer spending and business investment strengthen through 2011, the pace of growth should then pick up, though GDP is still not expected to have returned to pre-recession levels by the end of 2011.

The CBI predicts annual UK GDP growth of 1.0% in 2010, followed by 2.5% in 2011. The Bank of England is forecast to move away from the current emergency rate, with a small rise in interest rates in the third quarter of 2010, which is later than previously expected. Further small incremental increases would take the Bank rate up to 2% by the end of 2011.

Richard Lambert, CBI Director-General, said: "The economic outlook is improving, but the lack of a clear driver for growth will make for a bumpy ride in the months ahead. The CBI expects the recovery in 2010 to be slow and sluggish, with few signs of real strength until well into next year.

"To convince international investors that the spiralling budget deficit will not derail the economy, the Government must set out a credible plan to balance the books by 2015-16, two years earlier than currently planned.

"It must also avoid damaging tax rises. Targeted spending cuts and smart re-engineering of public services can preserve front line services and deliver the savings that will have to be made. At the same time, it is vital that business has the space to grow, invest and create new jobs. That’s the only way out of our current fiscal mess."

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