By Daniel Hunter

The UK economy will continue to grow throughout this year, with GDP growth expected to pick up in 2014, according to the CBI’s latest economic forecast.

But while recent economic data have been more promising, clear challenges remain both at home and abroad, the UK’s leading business group warned.

The CBI is forecasting GDP growth of 1% in 2013, unchanged from its previous forecast after official first quarter figures came in line with its expectations. Quarter-on-quarter growth is expected to gather pace gradually. The CBI is forecasting growth of 0.3% in the second quarter, 0.4% in the third and 0.4% in the final quarter of 2013.

In 2014, the CBI is expecting growth of 2%, with quarter-on-quarter growth to range between 0.5% and 0.6%.

John Cridland, CBI Director-General, said:

“The UK economy is moving from flat to growth.

“Although recent data suggests rising business confidence, the economic climate remains tough, hampering demand here and overseas. Meanwhile, consumers remain under pressure, as inflation continues to outstrip wage growth.

“Now the Government needs to pick up the baton and deliver on promises to get finance to firms, cut red tape and help drive up exports.”

The CBI is forecasting that unemployment will see a small rise in 2013 to 2.58 million before receding slightly to 2.51million in 2014.

Inflation is expected to peak in the second quarter of 2013 (3.1%) before starting to fall steadily for the rest of the year though remaining above target throughout 2014 (2.5%).

Uncertainty in the Eurozone and the muted international outlook is limiting business investment intentions this year. Business investment growth of just 3.3% is forecast this year, but is expected to pick up more significantly in 2014 as global conditions improve (6.3%).

Eurozone growth continues to have a negative influence on UK export prospects with an indifferent performance anticipated in 2013 (0.4%). An upturn in fortunes is expected throughout the next year with 5% growth.

Household spending is expected to remain subdued with wage growth weak and unemployment expected to rise slightly. However, improving confidence, lower inflation and improving credit conditions should support a gradual improvement in household consumption, with growth rising from 1.3% this year to 1.8% in 2014.

Stephen Gifford, CBI Director of Economics, added:

“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. However, while household incomes are expected to remain under pressure, improving credit conditions and confidence should maintain the momentum in the consumer recovery.”

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