CBI says UK economy will contract by 0.3% in 2012

Thursday, 30 August 2012 02:47

The CBI has cut its growth forecast once more for the UK economy in 2012, but expects growth to return in the final quarter of the year.

The business lobbying organisation says the UK economy will contract by 0.3 per cent this year. It had previously forecast growth of 0.6 per cent for 2012 in May.

The CBI says it expects growth to “pick up a little pace during 2013” and to improve modestly in the second half of 2012 as the economy recovers from the effect of the Jubilee celebrations and that inflation will fall a little more due to continued downward pressure on wage settlements, heavy discounting by retailers and a fall in commodity prices.

This will lead to a modest increase in consumer spending that should benefit the economy in 2013. The CBI predicts that real disposable income should rise in 2013 for the first time in three years.

The CBI says GDP will rise by 0.6 per cent in the third quarter of 2012 and by a further 0.2 per cent in the final quarter. The latest GDP figures showed that the UK economy contracted by 0.5 per cent in the second quarter of 2012.

In 2013, the CBI says the UK economy will grow by a total of 1.2 per cent, down from its earlier estimate of two per cent. The fall will be caused by a lower contribution from net trade. The continued problems facing the US and the eurozone will keep UK export levels subdued.

However, the CBI said, this estimate is at risk from the “on-going global uncertainty.”

The CBI believes unemployment will not increase as much as previously expected, peaking at 2.7 million in mid-2013.

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.”


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