UK recovery 'will remain sluggish in 2010'

In its latest economic forecast, the CBI said it expects growth prospects for the economy to be fragile in the near term now that certain stimulus measures, such as the VAT cut and car-scrappage scheme, are ending. Growth in consumer spending will remain subdued this year, as people save more and worries about job security persist.

The economy is expected to grow in the first two quarters of 2010 by 0.3 per cent and then 0.4 per cent respectively and by a slightly faster 0.5 per cent in the next two quarters. As global demand, consumer spending and business investment strengthen through 2011, the pace of growth should then pick up, although gross domestic product (GDP) is still not expected to have returned to pre-recession levels by the end of 2011.

The CBI predicts an annual UK GDP growth of one per cent in 2010, followed by 2.5 per cent in 2011. The Bank of England is forecast to move away from the current emergency rate, with a small rise in interest rates in the third quarter of 2010, which is later than previously expected. Further small incremental increases would take the bank rate up to two per cent by the end of 2011.