2% growth in UK economy forecast for 2011 after a sluggish start to the year, with inflation set to rise higher than previously thought.


The pace of recovery is expected to slow to a very sluggish rate of just 0.2% quarter-on-quarter in Q1 2011, predicts the CBI, when consumer spending dips slightly in response to the VAT increase.

However, the group believes the risk of a double-dip recession is low and that UK recovery will be maintained at steady but fairly modest growth of 0.4% and 0.5% for the remaining quarters.

Quarterly growth rates are expected to pick up a bit more momentum during 2012, with the economy forecast to expand by 2,4% over the year as a whole, according to the CBI.

Inflation is expected to be higher than previously forecast in 2011, with Consumer Price Index (CPI) inflation "significantly exceeding" the Bank of England's target of 2% for a second year. The CBI believes the upward push on inflation will come to an end by Q1 2012, when inflation is set to dip just below target before ending the year at 2.4%.

Confederation of British Industry (CBI) chief economic adviser said: "The big early kicker to growth from the turn in the inventory cycle has already passed and we are now starting to feel the impact of lower government spending. As a result, quarterly growth at the start of 2011 is likely to be very sluggish, although we do expect the recovery itself to stay on track."

He added: "Growth prospects for consumer spending look pretty subdued over the next couple of years. Real take-home pay will be further hot next year, unemployment is not expected to fall very quickly in 2012, and households will most likely face higher mortgage interest rates."

According to the CBI, household spending is forecast to rise by just 0.9% in 2011 and 1.2% in 2012.

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