CBI chief finds reasons to be cheerful

THE LEADER of the Confederation of British Industry has predicted “bumpy times” for the UK’s economy in the early part of 2011 but said that overall prospects for growth remain strong.

The organisation’s director-general, Richard Lambert, said that although many business leaders remain fairly upbeat about the general economic conditions, they also remain uncertain about a “volatile” political and economic outlook in the short-term as public sector cuts begin to bite and the VAT rise begins to slow consumer spending.

As a result, he predicted that growth in the first quarter of 2011 could be just 0.2%, compared with 0.7% in the third quarter of 2010.

“That news will be published at what will be a sensitive time in political terms.

“Spring will bring local authority elections in England, national elections in Scotland and Wales, and the promised referendum on voting reform. At the same time, welfare cuts will be starting to bite.

“You can easily imagine the screaming news headlines: about the threat of a double-dip recession; about strains on the Coalition Government; about protests in the streets.

“All this will be playing out against the background of continuing turmoil in the Eurozone. The direct exposure of our banks to the most troubled countries is quite modest.

“But recovery prospects in the UK would certainly be damaged if the contagion were to spread across our major trading partners in the European Union.”

Despite this, he argued that growth should pick up in the second half of the year and will continue into 2012, where annual growth rates should reach 2% and 2.4% respectively.

Lambert described this as “not much to shout about, perhaps, at this stage of a recovery, but enough to keep unemployment under control and the public finances on track”.

“This means that the CBI is not expecting a double-dip recession, or a dramatic surge in inflation and interest rates. And it is forecasting that overall employment at the end of 2012 will be higher than it is today, with growth in the private sector more than offsetting job losses among public sector employees.

“It all comes down to confidence. Of course there are lots of risks and uncertainties ahead, especially in the next few months. But with company balance sheets in reasonable shape and interest rates staying low, 2011 could also be a year of opportunity.”