IN spite of the lacklustre backdrop provided by the UK economy this year, the Confederation of British Industry (CBI) has stuck to its forecasts for growth in 2012, predicting a modest 2.2 per cent rise in GDP.
But the squeeze on household incomes from higher commodity prices and an erosion of business confidence means that the industry body has downgraded its predictions for 2011, revising its GDP growth forecast to 1.3 per cent, compared to the 1.7 per cent it expected in May.
The boost to the UK economy next year is likely to come from positive trade contributions, the CBI said, with a competitive sterling driving export rates, while imports are hit by reduced domestic demand.
Consumer expenditure is set to fall by around one per cent this year.
“Economic conditions will be very tough for the rest of this year as household budgets continue to be squeezed by a combination of inflation and weak wage growth,” said Ian McCafferty, the CBI’s chief economic adviser.
“But conditions will be a little brighter in 2012 as inflation eases back and take home pay improves.”
Business investment is also expected to bounce back next year, with the four per cent growth forecast this year increasing to more than nine per cent for 2012, matching historic levels.
But the investment figure is largely dependent on business confidence, on which both the CBI and Lloyds Bank (see below) have been less optimistic.
The business group cites Eurozone instability, US debt issues and the Japanese tsunami as events that have dented business confidence, which could put paid to hopes that a substantial cash surplus in the corporate sector will fuel investments.
The CBI also expect inflation to ease later in 2012, after predicting a rise from autumn through to the new year, mainly due to rising utility prices.