By Daniel Hunter

The UK economy is expected to grow modestly in 2013, with the pace picking up in 2014, according to the CBI’s latest economic forecast published today (Wednesday). But the UK’s leading business group warned that external risks to the outlook, in the Eurozone and further afield, remain.

The CBI is forecasting GDP growth of 1% in 2013, slightly below its previous forecast of 1.4%. This reflects the weaker-than-expected growth rate in the fourth quarter of 2012 (-0.3%). Quarter-on-quarter growth is expected to be marginally positive (0.3%) in the first quarter of the year, and stay between 0.3-0.4% for the rest of 2013.

Next year, the CBI is expecting growth of 2%, unchanged from its November forecast. Quarter-on-quarter growth is expected to be modest at around 0.5-0.6%.

“We are beginning to see the return of organic growth, with clear signs that firms offering the right products into the right markets are growing sales and expanding," John Cridland, CBI Director-General, said.

“Recent business surveys also give grounds for cautious optimism about our forward prospects.

“Looking ahead, external risks to the outlook in the Eurozone and further afield are likely to keep growth at home and abroad in check.

“The potential for Eurozone tensions to flare up again, coupled with tough conditions in the domestic market, explain why business confidence remains patchy. After the uncertainties of 2012, the fear of external storm clouds lingers.”

The CBI is forecasting that inflation will edge higher until mid-2013, but will fall back in the second half of the year, and will be close to the Bank of England’s 2% target throughout 2014.

Unemployment levels are unlikely to change significantly over the forecast period, at 2.5 and 2.42 million in 2013 and 2014 respectively.

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 6% in 2013 and 2014.

Meanwhile, the weak outlook for Eurozone growth continues to depress export prospects. Net trade is likely to be flat this year and next (-0.1% and 0.1% respectively).

Conditions will still be difficult for households in 2013, given weak growth in household spending power and unemployment at around 7.8%. Household consumption growth of 1.1% is expected this year.

“The recovery is a long drawn out process of adjustment, alongside deficit reduction, but there’s still scope for policy to provide further support," Mr Cridland added.

“We’ve called for the Government to boost capital spending by digging a bit deeper on current expenditure, and to get investment spending flowing in the short term, for example on much-needed repair and maintenance of the roads system.”

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