CBI predicts UK Economy To Continue Slow Recovery In 2011, 2012

CBI predicts UK Economy To Continue Slow Recovery In 2011, 2012 ; The U.K. economy will continue to recover over the next two years, but only slowly, with growth particularly sluggish at the start of 2011, the Confederation of British Industry said Monday. The business organization foresees a 2.0% increase in gross domestic product in 2011--same as it predicted in September--followed by a 2.4% rise in 2012.

Ian McCafferty, chief economic adviser at CBI, said these rates are lower than would typically be expected at this stage in recovery, but he doesn't see a high risk of the economy falling back into recession.

Growth in the first quarter of 2011 is expected to be particularly slow, under the impact of government spending cuts and a higher sales tax starting in January. The rest of the year is expected to be more even, with the economy growing about 0.5% per quarter.

Though the CBI expects the recovery to stay on track, McCafferty warns of "higher-than-average" levels of uncertainty due to external factors like high commodity prices.

"The persistent strength of energy and commodity prices is a growing concern, as it is likely to mean that inflation does not fall back quite as sharply as many hope," McCafferty said.

As a result, the CBI predicts the Bank of England will raise interest rates by 0.25% per quarter, starting in the second quarter of 2011 and finishing at 2.75% by the end of 2012.

The CBI expects the number of unemployed to remain over 2.5 million through 2012 but is confident the private sector will absorb public workers who lose their jobs during the government's austerity program.

The CBI predicts 80,000 private sector jobs will be created in 2011, doubling to 160,000 in 2012.

The majority are expected to be in the manufacturing sector, which McCafferty said is "leading the UK economy out of recession."

The CBI also expects business investment and net trade to drive the economy instead of government and consumer spending. Business investment is expected to increase 7.0% in 2011 and 8.5% in 2012 because the corporate sector currently has access to strong cash reserves. But investment still has a long way to go before reaching pre-recession levels.

The CBI doesn't expect credit flows to increase as "banks are still putting their own houses in order" and liquidity is high so there is little need for bank financing.

Exports are expected to grow because some U.K. trade partners like China are experiencing sustained growth. The drop in sterling helps, making U.K. products more affordable abroad.

Household spending is expected to decline marginally to 0.9% in 2011 from 1.1% in 2010. It will pick up slightly to 1.2% in 2012. For the latest updates PRESS CTR + D or visit Stock Market news Today

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