CBI expects slower economic growth in 2011

There's good news and there's bad news for the UK economy, according to the Confederation of British Industry (CBI).

The business organisation said it expects the UK economy to grow at a faster rate this year than it previously thought.

However it has revised downwards its forecast for next year, when it believes the pace of recovery will be "sluggish" as business and consumers alike come to terms with measures announced in the emergency Budget, including the looming VAT hike and what it called "modest wage increases".

The CBI reckons the UK economy will grow 1.6 per cent this year, versus its previous forecast of 1.3 per cent growth, thanks to better than expected growth in the second quarter due to stock rebuilding.

But the CBI said it was lowering its expectations for growth next year.

It believes economic activity will rise by two per cent, rather than the 2.5 figure it fixed on back in June.

Despite the possibility of consumers rushing out towards the end of the year to buy big ticket items before the VAT rise comes in next January, spending is expected to be a paltry 0.9 per cent this year, and - as the CBI described it - "an equally anaemic one per cent in 2011".

Richard Lambert, the CBI's director-general, said: "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.

"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."