New signs the economy has stopped flat-lining

CBI expects improved growth in the UK over the next 18 months after success of first quarter
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The Independent Online

Britain's foremost business lobby group argues today that the UK's stagnant economy is finally "moving from flat to growth". In its latest report, the Confederation of British Industry says that it expects GDP to expand by 1 per cent in 2013, followed by 2 per cent growth next year.

The Office for National Statistics has estimated that the economy expanded by 0.3 per cent in the first quarter of the year, meaning that the UK avoided a triple dip recession. "Our latest survey data suggests that the momentum shown in the first quarter will continue into the next" said the CBI's director of economics, Stephen Gifford. "We continue to expect UK economic growth to strengthen and become more broad-based over this year and next."

The Bank of England will also publish its quarterly growth and inflation forecasts this week, with City analysts expecting the central bank to unveil a rare upward revision on the back of the better recent survey data.

Further good news came today as Lloyds TSB's report into business activity across the English regions recorded its strongest result for eight months.

The CBI expects unemployment to rise slightly this year to 2.58 million, before steadily falling over 2014. Likewise, it expects employment to fall marginally and then to rise steadily.

However, the business group sees CPI inflation rising briefly above 3 per cent in June and remaining above the Bank of England's official 2 per cent target rate until at least the end of 2014.

The report says that inflation and weak wage growth will keep pressure on household finances. Nevertheless it expects household consumption, aided by the Chancellor's increase in the tax free personal allowance, to rise slightly this year and next. It expects the household savings rate to fall from 7.1 per cent to 5.4 per cent as people feel more secure about their finances.

The CBI said that it expects the eurozone, which accounts for half of UK trade, to emerge from recession in the second half of the year, contributing to a 5 per cent jump in exports in 2014. It sees fixed capital investment rebounding by 5.7 per cent next year, led by the manufacturing sector.

The latest BDO Business Trends survey, also published today, reports that its optimism index for the dominant services sector improved in April from 93.2 to 94.9, although this is still short of the 95 level that signals growth.

Unveiling the CBI report, the director-general John Cridland said that the Coalition should do more to support growth despite this year's expected pickup. "The Government needs to pick up the baton and deliver on promises to get finance to firms, cut red tape and help drive up exports" he said.

The Lloyds TSB Regional Purchasing Managers' Index reached it highest level since August 2012 scoring 52.2 in April. Any score above 50 represents growth and this is the sixth consecutive month in which it has done so.

Growth in April was led by Yorkshire & Humberside and the East Midlands with London dropping back from first place to third. David Oldfield, managing director for small and medium business banking at Lloyds said: "Last month's rebound in regional business activity gives us an early indication that growth and confidence have continued into the second quarter of 2013.

"The most encouraging development was the rise in new business orders across all nine English regions."