CBI slashes recovery forecast for next year

The economy is set to grow at a slower rate than was originally expected in 2011. But it's not all doom and gloom...

by Emma Haslett
Last Updated: 15 Oct 2010
As October’s spending review draws nearer, nerve ends are jangling – and it’s doubtful that the latest growth forecast from the CBI will do much to cheer people up. The group says GDP growth for next year will be 2% - lower than the 2.5% it had previously predicted. Apparently, that’s because the original forecasts it made didn’t take into account the spending cuts made in the Emergency Budget. It’s hardly a complete disaster, though - at least it's still predicting growth, unlike some other forecasters...
 
The CBI says its main reasons for the downgrade are the VAT rise, due to kick in next January, and relatively low wage settlements, which means consumers will have less money to spend. It also reckons that unemployment, which it originally expected to peak at the end of 2011, is now expected to climb more gradually: it's expected to rise from 2.49m at the end of this year to about 2.62m in the last three months of 2011, and then keep climbing thereafter.
 
That's not to say the CBI is opposed to Government spending cuts, however. In fact, it's taking a fairly balanced view. While the outlook for next year might not be as encouraging as originally forecast, let’s look on the bright side, it says: at least growth is going to happen. And it’s will keep happening this year, too: the CBI expects the economy to grow by 0.3% and 0.6% in the last two quarters of the year. Given that the economy dragged itself out of recession in the last three months of 2009, that would mean we’d have been growing for a full year – which has got to be a good thing.
 
In fact, CBI chief Richard Lambert's positively chirpy view is that ‘the UK’s tentative recovery will be sustained, albeit with weaker levels of growth’. That’s certainly more cheering than ex-Bank of England Monetary Policy Committee member David Blanchflower's asssessment: ‘I absolutely don’t rule out a double-dip. I think the probability of it is rising daily,' he doom-mongered yesterday.
 
The picture remains unclear. But the CBI’s forecast (along with yesterday's vote of confidence from credit ratings agency Moody’s) does at least provide some support for the view that that the worst may be over, at least as far as the private sector is concerned.
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