The long and winding road

Posted on 20 Dec 2010 by The Manufacturer

The recovery of the British economy is set to slow to snail’s pace at the beginning of 2011, although the risk of a double dip recession is now low, according to the Confederation of British Industry (CBI).

The organisation predicts growth in quarter one next year will be at just 0.2 per cent year on year.

For the whole of 2011, CBI expects the economy to grow by 2 per cent, followed by 2.4 per cent in 2012 and described the latter figure as “subdued for this stager of the recovery”.

“The big early kicker to growth from the turn in the inventory cycle has already passed and we are now starting to feel the impact of lower government spending,” said Ian McCafferty, chief economic adviser for the CBI.

“As a result, quarterly growth at the start of 2011 is likely to be very sluggish, although we do expect the recovery itself to stay on track.

“What is striking is how little we see growth accelerating in 2012. Typically, by the third year of a recovery, growth would be more robust than we expect for either 2011 or 2012.”

The organisation expects Bank of England’s interest rates to be bumped up gradually between now and the end of 2012 when they are expected to reach 2.75 per cent.

Employment, it says, will reach 2.6m over the course of this year before falling back to its current level of 2.5m by the end of 2012.

However, exports are expected to grow by 6.9 per cent and 8 per cent respectively over the next two years which will have a positive effect on the UK’s net trade.

Business investment is also expected to grow – by 7 per cent and 8.5 per cent respectively – but at the end of this period it will still be lower than in 2008.