Britain’s biggest business lobby raised its U.K. economic forecasts for this year and next after a surge in third-quarter growth and said the Bank of England will probably refrain from expanding stimulus next week.
The economy will stagnate this year and expand 1.4 percent in 2013, the Confederation of British Industry said in a report published in London today. In August, it predicted a 0.3 percent contraction and a 1.3 percent expansion respectively. Growth may accelerate to about 2 percent in 2014.
The U.K.’s rebound from a recession was partly due to one-time factors such as Olympic ticket sales. While expansion may continue in the current quarter, the economy remains vulnerable to shocks from abroad, CBI Director General John Cridland said. He also said the the Bank of England may only pause its stimulus program on Nov. 8 and policy makers may restart the asset-purchase program later to aid the economic recovery.
“The economic outlook is challenging,” Cridland said at a briefing yesterday. “Risks are on the downside. It’s more likely than not that European policy makers will continue to do enough to keep the euro zone together, but there has to be a risk that slows down global growth.”
Anna Leach, the CBI’s head of economic analysis, said the U.S. fiscal cliff will add to the uncertainty on the economic outlook through to the end of the year. The cliff refers to more than $600 billion of federal spending cuts and tax increases that will automatically take effect at the start of next year unless Congress acts. The impact on the U.S. economy in the fourth quarter from Hurricane Sandy will be “relatively limited,” Leach said.
In the U.K., fourth-quarter growth will be “marginally positive” given that there will probably be few one-time factors to distort the data, Cridland said. Households, trade and business investment will make stronger contributions to growth next year, he said.
Cridland called on the government to boost infrastructure investment to promote a rebalancing of the economy away from London and the southeast, though he continued to support its policy for tackling the deficit. Chancellor of the Exchequer George Osborne will present his year-end budget statement to Parliament on Dec. 5.
“We remain rock solid in supporting the chancellor on the necessity of deficit reduction,” Cridland said. “If he could stick to the deficit-reduction plan and find a little more to spend on capital, I would welcome that.”