'UK should avoid a triple-dip recession': But CBI cuts growth forecast

A leading business body has cut its UK growth forecast for this year but said the UK should avoid a triple-dip recession.

The CBI expects the UK economy to grow 1% in 2013, less than its previous estimate of 1.4%, warning the potential for a new "flare-up" in eurozone tensions was likely to keep confidence and growth in check.

But it said a rise in job vacancies and an improvement in business sentiment since its last forecast suggested the economy would avoid another recession and grow 0.3% in the first quarter of this year.

Hopes that Britain will avoid a triple-dip recession after the economy shrank in the final quarter of last year have been boosted by recent surveys which showed the services sector returned to growth and manufacturing output rose at its fastest pace since September 2011 in January.

Director-general John Cridland said: "We are beginning to see the return of organic growth, with clear signs that firms offering the right products into the right markets are growing sales and expanding. Recent business surveys also give grounds for cautious optimism about our forward prospects."

But he said the potential for eurozone tensions to flare up again, coupled with tough conditions in the domestic market, explained why business confidence remained patchy.

He said: "After the uncertainties of 2012, the fear of external storm clouds lingers."

Inflation, which remained above target at 2.7% in January, is likely to edge higher by the middle of the year due to energy price hikes and tuition fees, but the CBI said unless there was a "marked deterioration in economic conditions" it did not expect the Bank of England to carry out any more asset purchases, also known as money printing.

It also said household spending power, which has come under pressure amid high inflation, is set to grow at a more muted pace this year, but as confidence improved the impulse to save would wane.

The CBI said UK exports would be stronger this year, with the global economy likely to grow faster as growth in China picks up and the US economy continues its "relatively solid, if unspectacular recovery".

PA