Economic growth: patchy and slow

The UK economy will continue to recover during 2011, but economic growth will be patchy and slow, the CBI warned today.

In its latest economic forecast, the CBI predicted that the GDP would grow by 1.7% this year, with growth of 2.2% expected in 2012. However higher inflation than was previously forecast is anticipated due to the volatile commodity prices.

Strong net exports and business investment are expected to make important contribution to driving the economy forward, but squeezed budgets, weak wage growth, high inflation and public spending cuts continue to keep the pace sluggish. Unemployment is also expected to peak at 2.62 million in Q4 of 2011 and remain high throughout next year.

Ian McCafferty, CBI chief economic adviser, said: “The recovery continues to be choppy and lacking in vigour. What remains striking is how little we expect the pace of growth to accelerate in 2012, and that it will be far less robust than we’d normally expect in the second and third years of a recovery.”

“Of particular concern are rising commodity prices, which are putting more intense upward pressure on inflation.”

The combination of higher inflation and VAT, weak wage increases, higher mortgage interest rates, and ongoing concern over unemployment has kept the consumption outlook subdued. Household spending is forecast to grow more slowly than previously thought, at 0.2% in 2011 and 1.1% in 2012.

The latest figures from the Insolvency Service show that this has helped fuel a rise in retail insolvencies - increasing 70% from Q4 2010 to Q1 2011.

Barry Knight, Head of Retail at finance and business advisors Grant Thornton UK LLP, said: “The high street has been struggling over the last few months with many retailers reporting some of their worst months on record.”

“Many high street retailers have tried to restructure their company by disposing of some physical outlets in a bid to retain some value and save the business on the back of poor trading. This trend has been exacerbated by the move to online shopping. I expect this to continue and it is likely that the numbers of company voluntary arrangements (CVAs) will increase in the sector in the coming months.”