By Daniel Hunter

UK growth will be flat this year, and should show a modest pick-up throughout 2013.

A slight improvement in pace should be seen in 2014, but external risks to the outlook are likely to continue, according to the CBI’s latest quarterly economic forecast.

The CBI forecasts GDP growth will be 0% in 2012, slightly above its previous forecast (-0.3%), reflecting the better-than-expected quarterly rate of growth in the third quarter (+1.0%). However, without the impact of one-off distortions in the fourth quarter, quarter-on-quarter growth is expected to be only marginally positive (+0.2%).

In 2013, the CBI forecasts growth of up to +1.4%, marginally up from +1.2% in August, reflecting improved growth figures in the third quarter. Quarter-on-quarter growth is expected to be modest, however, at around 0.3 to 0.4%.
But the risks around the outlook remain on the downside, from the Eurozone crisis continuing, and concern about the impact of inflation.

Inflation is now likely to be somewhat higher than previously forecast through 2013 as a result of greater upward pressure than previously anticipated in the coming months from rises in utility prices. But nevertheless we still expect inflation to be close to the 2% target by the end of next year, given subdued underlying conditions.

Despite the recent puzzling resilience of the labour market, a small rise in unemployment in the first half of 2013 is possible, given its lagging nature and relatively weak economic performance in the first half of 2012. Labour market conditions are expected to improve steadily from the second half of 2013 and throughout the following year.

Uncertainty on the international front is likely to continue to act as a restraint to business investment growth which is expected to remain modest at around 3.8% this year and 5.0% in 2013.

Meanwhile, the weak outlook for Eurozone growth continues to depress export prospects. Net trade is likely to be flat this year (-0.1%), followed by an increase next year (3.7%), as conditions in the global economy improve.
The CBI forecasts GDP growth of up to 2.0% in 2014, which is still a relatively lacklustre pace of expansion, but reflects our expectation that the drivers of growth will broaden and strengthen somewhat. Households, net trade, and investment are all likely to make a stronger contribution, but the risks here too remain on the downside.

John Cridland, CBI Director-General, said: “Despite the better than expected third quarter performance, the UK economy has bumped along the bottom this year, with overall growth fairly flat.

“While we expect underlying momentum to pick up modestly next year and to be slightly stronger in 2014, the pace will remain relatively lacklustre.
“But, major external risks including continuing uncertainty in the Eurozone, and risks to inflation, will hit confidence and growth for some time to come.”

Anna Leach, CBI Head of Economic Analysis, said: “The CBI’s latest survey data suggest that growth is set to be marginally positive in the fourth quarter. Prospects for next year are somewhat brighter, when we expect some modest strengthening in household consumption to put the recovery on a slightly firmer footing.

“Though inflation is likely to be higher in 2013 than we previously anticipated, the labour market is expected to be a little more resilient over the year.”

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