The Confederation of British Industry forecast a 2.0% growth rate for the UK economy in 2011 and expects that in 2012 the economy will be recovering slightly faster at 2.4%.
Despite many risks to the outlook, and a forecast of particularly fragile growth at the beginning of 2011, the UK recovery is expected to be maintained and the CBI still considers the risk of a double dip back into recession to be low.
The pace of recovery is expected to slow to a very sluggish rate of only 0.2% quarter-on-quarter in Q1 2011, when consumer spending falls slightly in response to higher VAT. Steady but fairly modest growth of 0.4%, 0.5% and 0.5% is predicted over the remaining quarters of 2011.
During 2012, quarterly growth rates are expected to pick up a bit more momentum, 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. CPI 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. 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%.