Latest CBI forecast underlines protracted economic recovery

The CBI forecast for the UK economy highlights the protracted and faltering nature of the UK economic recovery as global demand remains weak.

The CBI forecasts that the UK economy will grow by 1.5% in 2002, a slightly slower rate than the 1.7% predicted in May. This poor economic performance has been reflected in the continuing manufacturing recession and more recently in the slowdown in growth in the service sector. Falling equities and exchange rate volatility have caused further uncertainty. Despite this, economic growth is expected to pick-up to 2.7% in 2003.

The downward revision of the forecast is the result of the continued sluggish performance of the world economy. Following weaker than expected exports over the first half of 2002, exports are expected to increase over the second half of the year. External demand is expected to pick-up in 2003, with export growth set to rise to 3.3%.

Private consumption remained strong over the first half of the year but is showing signs of slowing. Households are expected to continue to spend but at a slower rate over the second half of 2002 and into 2003, due to high levels of debt and greater uncertainties in the job market.

Domestic demand will be supported by accelerating government spending. But firms are unwilling to invest, with the manufacturing recession forecast to continue for a sixth consecutive quarter.

Following the poor performance of the UK economy, job losses are expected to increase this year. ILO unemployment is forecast to rise to 1.65 million by the end of 2002, falling to 1.58 million by the end of 2003 as the general economic recovery progresses.

The CBI expects the underlying retail price index (RPIX) to remain below the Bank of England&#39s target of 2.5%, reaching 2.1 % by the end of 2002 and 2.4% by the end 2003. In the current difficult trading environment, the inflation outlook remains benign.

CBI chief economist Ian McCafferty says: “Global uncertainty has weakened the UK economic outlook. Predictions of a speedy US recovery have failed to materialise, and recent stock market volatility and corporate scandals have increased uncertainty at an already fragile time.

“This recovery, in the UK and internationally, is likely to be slow going. The global economy is still working off the excesses of over-investment and rising levels of debt of the late 1990&#39s. This is a necessary prelude to a stronger, more sustainable recovery. Companies will need to be patient and maintain realistic expectations for some time to come.”