The Confederation of British Industry (CBI) cut its forecast for gross domestic product growth (GDP) for this year and next, albeit due to the contraction seen at the end of 2011. However, the business lobby expects the UK economy to avoid the technical definition of a recession, often defined as two consecutive quarters of contraction, thanks to increased business optimism.
CBI also anticipates no further increases in the size of the Bank of England´s asset repurchase program, although the Bank is not expected to tighten its monetary policy settings until the second half of 2013. The UK economy is now forecast to expand by 0.9% this year and by another 2% the next. That compares with previous forecasts of 1.2% and 2.2%.
More specifically, economic activity is now seen rising at a quarter-on-quarter rate of 0.2% in the first and second quarters, followed by a pace of expansion of 0.6% and 0.5% in the last two quarters. As far as the outlook for prices is concerned, the CBI predicts that inflation will fall to 2.2% in the last quarter of 2011, staying close to 2% throughout the year afterwards.
The CBI also said that unemployment would continue rising this year, peaking at 9.1% in the fourth quarter from the current rate of 8.4%, which is already the highest since the mid-1990s.
Powered by Commodity Insights