Business organisation the CBI (Confederation of British Industry) today (22 September) said it expects the UK economy to grow at a slower pace next year as consumer spending takes a hit from January’s VAT rise and modest wage increases.
In its latest economic forecast, the CBI predicts that the UK economy will grow by 1.6% in 2010, slightly faster than the 1.3% predicted in June. The slight upward revision reflects better than expected growth in the second quarter this year as companies began rebuilding their stocks.
But the pace of recovery looks to be more sluggish in 2011, with GDP set to drop to 2.0% from the 2.5% seen two months ago following the additional fiscal consolidation measures announced in the emergency Budget.
Encouragingly, the CBI also considers that a double-dip back into recession is unlikely.
“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,” notes CBI director-general Richard Lambert. “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.”
Although household spending is expected to receive a boost at the end of the year, as consumers seek to avoid higher VAT in January, growth in spending is forecast to be restrained next year. Consumer spending growth of 0.9% in 2010 is likely to be followed by an equally anaemic 1.0% in 2011.
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