–UK Growth Forecast Maintained At 2.0% In 2011; 2.4% In 2012
–Sees Gentle Normalisation Of BOE Rates As Of Spring 2011
–Says Double Dip Risk Is Low But V Sluggish Start To 2011

LONDON (MNI) – The Confederation of British Industry has maintained
its forecast for 2.0% growth in the UK economy next year, rising to 2.4%
in 2012.

The new forecasts, however, stress the risk of a double dip
recession is low. The CBI sees growth at just 0.2% in Q1 2011 as the
hike in VAT impacts on consumer spending. Steady but fairly modest
growth of 0.4%, 0.5% and 0.5% is predicted over the remaining quarters
of 2011.

Quarterly growth rates are expected to pick up a bit more momentum
during 2012, with the economy forecast to expand by 2.4% over the year
as a whole, which is rather subdued for this stage of a recovery.

The CBI expects inflation throughout 2011 to be higher than
previously forecast, reflecting greater inflationary pressure from
energy and commodity prices. Inflation will significantly exceed the
Bank of England’s 2% target in 2011 for a second year, mainly due to the
impact of higher VAT, the CBI says.

This upward push to inflation will end by Q1 2012, when inflation
is forecast to dip just below target before ending the year at 2.4%.

The CBI forecasts that the BOE will start to normalise monetary
policy in the spring, with interest rates rising gently through to
mid-2012, followed by a slightly faster monetary stimulus withdrawal
over the second half of 2012. This will take the Bank Rate up to 2.75%
by Q4 2012.

Ian McCafferty, CBI Chief Economic Adviser, said: “The pace of
recovery in the UK economy has been slightly stronger over the past year
than we and many others had expected, and somewhat faster than typical
during the first year out of a recession. But we do not expect that
rapid pace of growth to continue over the next two years of 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.

“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.

He continued: “Growth prospects for consumer spending look pretty
subdued over the next couple of years. Real take-home pay will be hit
further next year, unemployment is not expected to fall very quickly in
2012, and households will most likely face higher mortgage interest
rates”.

–London bureau: 44 20 7 862 7492; email: ukeditorial@marketnews.com

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