The Confederation of British Industries (CBI) has lowered the country’s GDP growth projections for the second time this year, citing erosion of business confidence and surging commodity prices.
Britain’s top lobbying organisation now pegged the GDP growth at 1.3 per cent for the year, down from 1.7 per cent it had forecast in May, which was a reduction from its earlier projection of 1.8 percent in February.
However, the GDP growth for 2012 has been left unchanged at 2.2 per cent by the country’s biggest business group.
The British economy will grow despite the business environment becoming tougher, said director general of CBI, John Cridland. “It may be a lackluster recovery, but with solid net trade contributions and the positive impact of business investment, the UK will remain on growth track.”
The investment growth for the year has been put at 4 per cent, which is expected to touch 9 per cent in 2012. Businesses have been sitting on cash reserves, unwilling to commit investments on the US and Eurozone debt fears.
“The global economy has slowed in the face of several shocks, including the Japanese tsunami and soaring commodity prices. These factors have combined with political uncertainties around the eurozone sovereign debt crisis, the wrangling in (the US) Congress over the US debt ceiling and the policy tightening in China, to erode confidence and soften activity.”
Unemployment is expected to fall to 2.41 million by 2012 before peaking to 2.5 million in the fourth quarter of 2011.
“Economic conditions will be very tough for the rest of this year as household budgets continue to be squeezed by a combination of inflation and weak wage growth. But conditions will be a little brighter in 2012 as inflation eases back and take-home pay improves,” said Ian McCafferty, chief economic adviser of CBI.
“We don’t expect the (Central) Bank to adjust interest rates until there are clear signs of a marked and sustained pick-up in economic activity. This adjustment is now likely to come later than previously expected – in the first quarter of 2012”, he added.