UK Economy to Grow in 2012, says CBI

The UK economy will grow in the first quarter of 2012, albeit somewhat precariously, according to the Confederation of British Industry (CBI).

The prediction means that Britain should narrowly avoid recession – technically two consecutive quarters of contraction.

The organisation expects 0.9% GDP growth in 2012, down fr om November’s 1.2% forecast and growth of 2.0% in 2013.

John Cridland, CBI director-general, said: ‘Economic conditions will continue to be tough, especially in the first half of the year, and the UK recovery will depend on the successful resolution of the eurozone crisis.

‘But some activity has picked-up since before Christmas and the mood among many businesses has improved, with exception of companies serving the UK consumer wh ere business remains flat.’

He expects the pressure on household incomes to ease in the second half of the year as inflation falls, resulting in marginally improved consumer spending. But weak wage growth and high levels of unemployment would keep spending in check.

Quarter-on-quarter growth will remain fragile in the first two quarters of this year (0.2%, 0.2%), improving modestly in the second half of the year (0.6%, 0.5%), as inflationary pressures ease.

Net trade and business investment will continue to provide the most positive contributions to growth, with exports up to 4.3% and 6.4% in 2012 and 2013 respectively. Total business investment of 4.3% is forecast for 2012 and 5.0% for the year after.

Ian McCafferty, CBI chief economic adviser, said: ‘The ECB’s decision to inject more liquidity into the system has reduced the chance of a banking crisis. There are also tentative signs of a stabilisation in economic activity in the ‘core’ countries which account for a large proportion of UK exports.’

However the latest BDO Monthly Business Trends Indices points to the UK entering a technical recession following contraction in Q4 2011 – albeit much less severe than in 2008-9.