CUTS to the government’s deficit must be seen through despite a slowdown in the outlook for growth, the Confederation of British Industry (CBI) will state today.
The message marks the launch of the CBI’s latest economic forecast, which envisages even stronger price pressures on UK households.
Since February’s forecast consumer price inflation estimates have been bolstered to 4.2 per cent for this year (from 3.9 per cent) and 2.3 per cent for next year (from two per cent).
“Of particular concern are rising commodity prices,” said CBI economist Ian McCafferty. “By acting sooner rather than later, the Bank of England will be able to keep inflation expectations under control.”
“It’s entirely possible that people have factored in the effect high commodity and oil prices have on growth,” FTI consulting economist Vicky Pryce told City A.M. “They might have to revise them slightly upwards, if the impact of high prices is temporary.”
The British economy will expand by just 1.7 per cent this year, the CBI expects, down from February’s forecast of 1.8 per cent.
Yet fiscal consolidation remains “an essential part of the economic narrative, and the balancing of the economy,” the CBI has argued.
Asked how the economy would be faring if Labour’s final spending was being implemented instead of chancellor Osborne’s, McCafferty said: “It’s my strong belief that it would have been weaker.”
Nonetheless, the UK economy will only show “patchy and slow” growth in the near future, with the CBI’s 2012 forecast also being reduced, from 2.3 per cent to 2.2 per cent.