UK economy on path of slow growth
Stability returns in third quarter but forecasts for 2011 may be too optimistic
London: The UK economy is on a fragile path of very slow growth with gross domestic product (GDP) growth not returning to pre-recession levels until after 2011, the Confederation of British Industry (CBI) says.
Economists will this week, however, declare the recession officially over following revised growth figures that show the economy all but stabilised in the third quarter of the year.
Data published Monday corrected earlier estimates of 0.3 per cent economic contraction in the three months to September. Economists expect the Office for National Statistics (ONS) to revise up its estimate of gross domestic product (GDP) growth to just -0.1 per cent or possibly zero after encouraging recent changes in related data.
The CBI has also predicted that, regardless of the third quarter revision, the recession will be over by the end of the year.
The economy has contracted since June 2008, the most prolonged recession since records began in the 1950s, and has shrunk by 5.1 per cent in total.
"The economy will be on a fragile path of very slow growth as we continue to feel the lasting effects of the financial crisis," said John Cridland, CBI deputy director-general.
Interest rates will start rising gradually in spring 2010 from the current historically low level of 0.5 per cent, the CBI predicts. They will increase to two per cent by the end of next year and stay at that level throughout 2011. It also believes workers will be hit with another round of pay freezes.
The business group said the chancellor's growth forecasts for 2011 are too optimistic, and that government borrowing will be higher than the pre-budget report forecasts. It forecasts the economy will grow by 2.5 per cent in 2011, notably slower than the 3.5 per cent growth predicted by Alistair Darling.
It is more hopeful on the outlook for jobs, forecasting unemployment to peak at 2.8 million in the third quarter of next year against previous predictions of closer to 3 million.
GDP is widely expected to be revised up after the ONS recently reported construction sector output grew by two per cent between July and September — a reversal of the 1.1 per cent contraction initially estimated. The revision would be enough to add 0.2 percentage points to GDP, economists said.
