U.K. Economic Forecasts Lowered by CBI as Downside Risks Remain

Britain’s economy will shrink this year for the first time since 2009 and “downside risks” remain, the Confederation of British Industry said.

Gross domestic product will fall 0.3 percent this year and rise 1.2 percent in 2013, the London-based business lobby said today. It previously predicted growth of 0.6 percent and 2 percent, respectively. Still, CBI Director General John Cridland said reducing the budget deficit should remain the government’s priority and it’s not asking Chancellor of the Exchequer George Osborne to change his fiscal plans.

The CBI also said the economy may strengthen in the second half of 2012 after it shrank 0.3 percent in the first quarter and 0.5 percent in the three months through June. The group sees expansion of 0.6 percent in the third quarter and 0.2 percent in the final three months of the year.

The Bank of England cut its growth forecasts earlier this month and said the outlook is “unusually uncertain.” Recent indicators suggest the economy is still struggling to recover amid the euro-area turmoil and weak domestic confidence, with gauges of both manufacturing and services falling in July.

“The economy is flat rather than falling, but, nonetheless, momentum seems to have weakened,” Cridland said at a press conference today. “Underlying growth will return to the economy later in the year than previously expected, with a somewhat better outlook next year. The risks are very much on the downside.”

The Bank of England is in the middle of a 50 billion-pound ($79 billion) round of bond purchases that’s due to end in November. Anna Leach, the CBI’s head of economic analysis, said the CBI’s new economic forecasts assume no further expansion of quantitative easing.

“But it remains on the table should there be a further escalation in the euro-zone crisis,” she said.

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Scott Hamilton in London at shamilton8@bloomberg.net.

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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