UK recovery 'slower than thought'

Modest wage increases and high inflation will dent spending the CBI says

The UK's economy will recover more slowly than previously thought next year, business group the CBI has predicted.

It expects GDP to grow by 2% in 2011, not 2.5% as forecast in June this year.

Spending cuts aimed at getting public finances into better shape had prompted the revision, the CBI added.

But it said the prospect of the UK returning to recession was "unlikely", adding it expected growth in 2010 to be higher than previously thought.

It also said that the outlook for consumer spending next year was weaker than previously predicted, hit by stubbornly high inflation, in part from January's VAT rise to 20%, along with only modest wage increases.

'Fragile'

Official figures from the Office for National Statistics have shown that the UK economy grew by 0.3% and 1.2% in the first two quarters of 2010 respectively.

The CBI expects the economy to grow by 0.3% and 0.6% in the latter two quarters of the year.

Quarterly growth is then forecast to pick up gradually from 0.3% to 0.6% over the course of 2011.

"The degree of uncertainty around the outlook remains high, but our view is that the UK's tentative recovery will be sustained, albeit with weaker levels of growth," said CBI Director-General Richard Lambert.

"The fragile nature of the recovery is why, in the forthcoming spending review, the government must focus its scarce resources on those areas which most galvanise growth, namely infrastructure and capital investment."

And looking ahead to spending cuts to be announced in next month's comprehensive spending review, CBI chief economic adviser Ian McCafferty said "the action to get the public finances back onto a sustainable footing will no doubt temper the recovery going into 2011".

The group also said that it no longer expected unemployment to peak in the period to the end of 2011, but that it would instead rise at a more gradual rate, climbing from a predicted 2.49 million at the end of this year to 2.62 million at the end of 2011. The latest data put unemployment at 2.47 million.