Britain ‘will head back to growth this year’

An easing in inflation should see consumer spending levels rise. Picture: PA

The business lobby group believes inflation will begin to ease later this year, helping to stoke consumer spending, while economic uncertainty in the eurozone and elsewhere is receding, giving a boost to exports.

The CBI’s unchanged forecast is for 1 per cent growth in gross domestic product (GDP) in 2013, with the pace freshening to 2 per cent in 2014.

It follows recent official growth figures that were in line with the organisation’s estimates.

Stephen Gifford, CBI director of economics, said: “Our latest survey data suggests that the momentum shown in the first quarter will continue into the next.

“We continue to expect UK economic growth to strengthen and become more broad-based over this year and next. Global uncertainty has receded somewhat, setting the stage for a gradual improvement in trading conditions.”

The CBI said in its latest forecast that it expects growth of 0.3 per cent in the second quarter of 2013, covering the three months to 30 June, followed by 0.4 per cent in the third quarter and 0.4 per cent in the following three months.

Quarterly growth rates next year should be higher, at between 0.5 and 0.6 per cent, says the CBI.

Despite the optimism, the bosses’ organisation said the economic backcloth remained tough, “hampering demand here and overseas”.

Meanwhile, consumers remain under pressure, as inflation continues to outstrip wage growth.

But the CBI forecasts that unemployment will rise slightly this year to 2.58 million, before edging down to 2.51 million in 2014. And it believes inflation will peak between now and June at 3.1 per cent “before starting to fall steadily for the rest of the year”.

However, the CBI said inflation is still likely to remain at about 2.5 per cent throughout 2014 – above the Bank of England’s 2 per cent mid-term target.

In what economists have described as a possible “parting gift” from outgoing Bank of England governor Sir Mervyn King, the central bank is expected to revise upwards its economic growth forecasts for 2013 in its quarterly inflation report on Wednesday.

The Bank has previously forecast growth of 0.9 per cent for this year, which – along with the CBI – is one of the most optimistic predictions around.

King will be replaced by Bank of Canada’s Mark Carney on 1 July.

News of the CBI’s upbeat report comes amid other positive economic forecasts in two other surveys out today.

The spring 2013 Chartered Institute of Personnel & Development labour market outlook suggests employment growth is set to continue in the second quarter of 2013.

A separate survey from accountancy firm BDO reveals business confidence improved this month, driven by rising optimism in the services sector.

The output index for the services sector – which accounts for three-quarters of the UK economy against 12 per cent from what is still a “bleak” manufacturing sector – moved up from 93.2 in March to 94.9 in April.