CBI cuts prediction for 2011 Q1 economic growth

Financial News

Concerns for 2011 cause CBI to reduce prediction for economic growth in Q1 2011.

January’s VAT rise and fears over public sector cuts cause CBI to change estimate for Q1 2011 economic growth.

The imminent public sector cuts and VAT rise have caused the CBI to dramatically reduce its economic growth predictions for Q1 2011 from 0.3% to 0.2%.

The employment body believes a rise in energy bills and a higher rate of tax will hit consumers hard in the first few months of 2011 and slow the UK’s overall recovery, however it stressed it does not believe the country will fall back into a recession.

The CBI has confirmed that it expects an economic growth of 0.4% in Q2 and a growth of 0.5% in Q3 and Q4 – this would result in a growth of 2% overall for the whole year.

“Quarterly growth at the start of 2011 is likely to be very sluggish, although we do expect the recovery itself to stay on track,” commented Ian McCafferty, CBI chief economic advisor to the CBI. “What is striking is how little we see growth accelerating in 2012. Typically, by the third year of a recovery, growth would be more robust than we expect for either 2011 or 2012.”

Earlier this week the body also made its first predicitions for Gross Domestic Product growth for 2012. The CBI says the estimate of 2.4% is lower than usual for the third year of recovery following a recession.

Recent figures out this week show that the UK economy grew by 0.8% between January and September – this marks a slow down from the 1.2% growth experienced between April and June.

The CBI have also started to question key assurances made by the Bank of England this week. The body believes interest rates will need to rise to curb the threat of recession following higher than projected price rises. This comes after the Bank of England assured borrowers that it would soon bring inflation under control.

The body expects the bank rate to soar more than 2 percentage points in 2 years, with mortgage rates following close behind. It predicted the Consumer Price Index (the official measure of annual inflation) will rise to 3.8% in Q1 of 2011 – a figure which is well above the bank’s official target of 2% for the next 2 years.