CBI Cuts Its 2012 Growth Forecasts - Again

The Confederation of British Industry (CBI) has cut its growth forecasts for 2012 for a fifth time - but still believes the UK will avoid another recession.

The business lobbying group said it now expects Gross Domestic Product (GDP) to increase by just 0.9%, down from the 1.2% growth it forecast in November.

It has also lowered its prediction for 2013 from 2.2% to 2.0%.

However, with modest growth of 0.2% predicted for the first three months of this year, Britain was expected to escape an official recession - defined as two consecutive quarters of decline. Growth fell 0.2% in the last quarter of 2011.

The CBI downgraded its forecasts after "a particularly difficult autumn" but has been encouraged by increasingly upbeat industry surveys and business optimism.

It predicts growth will gather pace in the second half of the year, hitting 0.6% in the third quarter, but will remain fragile because of the eurozone crisis.

There was also expected to be some mild relief for households as the consumer prices index (CPI) rate of inflation continues to fall from its 5.2% peak in September.

Inflation is expected to drop to 2.2% in the final quarter of the year and remain close to the Bank of England's 2% target throughout 2013.

However, with unemployment set to rise to 2.9 million in the first quarter of 2013 - higher than the CBI's previous estimate of 2.75 million - wage growth is likely to stay modest.

CBI director general John Cridland said: "Economic conditions will continue to be tough, especially in the first half of the year and the UK recovery will depend on the successful resolution of the eurozone crisis.

"The pressure on household incomes will also ease slightly in the second half of this year as inflation falls, resulting in a slight increase in consumer spending.

"But weak wage growth and high levels of unemployment will continue to be a brake on household spending."