CBI: UK's economic recovery will slow next year

The pace of the UK’s economic recovery will slow early next year as demand slackens in the wake of a planned VAT hike, the CBI warned today.

While prospects for the rest of this year have picked up, with growth of 0.4% expected in the final quarter of 2009, the business lobby group said the new year could start with quarterly growth of just 0.1%.

It said consumers were likely to carry out their spending before the January reversal of last year’s VAT cut, while the boost from firms replenishing stock levels may have run its course by the start of 2010.

Commenting on the organisation’s latest economic forecasts, CBI director general Richard Lambert said there appeared to be “no clear driver” of robust growth going into 2010.

He added: “The outlook is improving as the UK draws strength from quantitative easing, a weak pound and a recovering global economy.

“Although growth this quarter should mark the end of the recession, conditions in the UK will remain tough for some time yet, and it is difficult to see where demand growth will come from.”

After five consecutive quarters of contraction, the CBI forecasts that GDP will shrink by 4.3% across 2009 and grow by 0.9% in 2010. The organisation still sees unemployment peaking at around three million in the second quarter of 2010.

Household spending is also expected to stay under significant pressure as consumers worried about job losses opt to increase savings and cut debts.

Consumption in the household sector is expected to fall by 3.2% in 2009 and by 0.2% in 2010, although growth should return on a quarterly basis in the second half of the year.

Following its largest fall in over 40 years in the second quarter, business investment is expected to continue declining over the rest of 2009, shrinking by 17.7% in the whole year. It is forecast to stabilise early next year before starting to recover, the CBI added.

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