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CBI cuts 2012 economic growth forecast

The Confederation of British Industry has cut its growth forecast for the second half of 2012 but said the economy should start picking up at the end of the year.

The CBI issued its latest quarterly economic forecast today, predicting GDP growth in 2012 to be -0.3 per cent, below its previous forecast in May of +0.6 per cent.

It said this reflects a more negative first half-year and a more modest rate of growth in the second half than it expected in May.

The CBI expects some improvement in GDP growth late in 2012, with a bounce-back from the Jubilee effect and inflation falling a little further.

John Cridland, CBI Director-General, said: “At present I believe the economy is flat rather than falling but, nonetheless, momentum seems to have weakened and the latest official figures put the UK in recession for the second quarter of this year.

“Underlying growth will return to the economy later in the year than previously expected, with a somewhat better outlook next year.

“However, euro area uncertainty, and the looming “fiscal cliff” of spending cuts and tax increases in the US will only add to the sense of unease during the coming months.”

Anna Leach, CBI Head of Economic Analysis, said: “While we expect GDP to rise in Q3 as the Jubilee effect unwinds, our survey data indicate that underlying conditions are close to flat, so the economy is likely to remain quite listless through the remaining months of 2012.

“On a more positive note, we expect the pressure on household incomes to continue to lift through the remainder of this year, as inflation falls further, and this should put the recovery on a slightly firmer footing next year.”

Breakdown

In the third quarter of 2012, quarter-on-quarter growth is expected to be +0.6 per cent, followed by +0.2 per cent in the final three months.

In 2013, the CBI forecasts GDP growth of +1.2 per cent, revised down from its previous forecast of +2 per cent, mainly reflecting a smaller contribution from net trade, given a weaker rate of global growth than previously forecast. But the risks for this forecast are on the downside given on-going global uncertainty.

The CBI does not expect unemployment to increase by as much as previously thought, peaking at 2.7m in mid-2013. With high levels of uncertainty persisting in the economy, growth in business investment is expected to remain modest, at around 5 per cent this year and 3.8 per cent in 2013.

Heavy discounting by retailers and a sharp fall in world commodity prices has led to a faster-than-expected drop in the rate of inflation. Combined with weak wage growth, inflation is expected to fall back a little further by the end of the year, and should remain close to the Bank of England’s 2 per cent target throughout 2013.

Difficult conditions in the global economy, particularly the Eurozone and the US, mean export growth is likely to be weaker than was forecast in May.

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