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No recession but growth only "modest", predicts CBI

Household spending will continue to be subdued.

The UK economy will escape a return to recession later this year but the short term economic outlook remains weak. Those are the major findings from the CBI's latest quarterly economic forecast published this morning.

Following negative GDP growth of 0.2 per cent in the final quarter of 2011, the employers' organisation estimates that the economy will grow 0.9 per cent in 2012. The figure is down on the CBI's own prediction of 1.2 per cent for the year, issued last November.

The CBI also forecasts a modest growth rate of 2.0 per cent for 2013, fuelled in part by an expanding manufacturing sector. Retail sales and consumer confidence will remain sluggish, however.

CBI Economic forecast, February 2012

John Cridland, director general of the CBI, said in a statement: "Although risks remain we expect growth this year, improving modestly in 2013, primarily driven by positive net trade and business investment."

Meanwhile, the organisation expects inflation to fall throughout 2012 as the January 2011's VAT rise and last year's high energy prices no longer have an impact year on year.

It also predicts that household spending will continue to be subdued, as wages remain flat and unemployment high. Household savings ratio is projected at 6.4 per cent for the first quarter.

Ian McCafferty, chief economic adviser at CBI, said: "After a particularly difficult autumn which saw a contraction in growth in the fourth quarter, recent business survey data in manufacturing and professional services, has been more encouraging with an uptick in activity and improved business sentiment."

"While significant risks in the euro area remain, the ECB's decision to inject more liquidity into the system has reduced the chance of a banking crisis. There are also tentative signs of a stabilisation in economic activity in the 'core' countries which account for a large proportion of UK exports,'' McCafferty added.

The CBI forecasts that global GDP will touch 3.4 per cent in 2012 as against 3.8 per cent in 2011.