UK facing bumpy economic recovery -CBI

By | Subscribe to IBTimes's | May 3, 2012 9:58 AM IST

Britain's economy faces a long and difficult recovery with substantial headwinds from the euro zone and high oil prices, a leading business lobby group said on Thursday as it revised down its growth forecast for 2012.

But the Confederation of British Industry (CBI) insisted that underlying conditions were more buoyant than suggested by official data, which showed Britain's economy slid back into recession in the first three months of this year, and said it expected growth to pick up in 2013.

"The economy has been bumping along the bottom, and with the distortions from an extra bank holiday in the second quarter, is likely to stay that way until summer," said CBI chief economic adviser Ian McCafferty.

"Nevertheless, business surveys suggest that underlying conditions are starting to improve, and that we should see more momentum in the second half of the year."

The CBI reckons Britain's economy will expand by just 0.6 percent this year, down from the 0.9 percent it forecast in February.

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That is also below the 0.8 percent growth figure pencilled in by the government, and the CBI said that as a result it expected government borrowing to be higher than forecast in 2012/13 and 2013/14.

The CBI said the extra public holiday in June meant the economy would not grow at all in the second quarter, but it forecasts a rebound of 0.7 percent between July and September.

Many economists have expressed doubts about the reliability of official data showing the economy shrank by 0.2 percent between January and March, which was in marked contrast to many private sector surveys, including the CBI's own Industrial Trends figures.

The Bank of England has also said it is focusing more on underlying measures of economic activity, indicating that it will not inject any more stimulus into the economy when its current 325 billion pound quantitative easing programme ends.

The Bank is particularly worried that inflation is not falling as fast as it had hoped at the start of this year. Inflation ticked up to 3.5 percent in March, well above its 2 percent target. The central bank had expected inflation to fall below target towards the end of this year.

The CBI reckons inflation will not hit the Bank's target until spring 2013.

(Reporting by Fiona Shaikh; Editing by Catherine Evans)

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