Spending Cuts Will Slow Economic Recovery

The UK’s economic recovery will be slower than expected in 2011, following the Government’s programme of public spending cuts, the Confederation of British Industry (CBI) has said.

The business group has downgraded its forecast for economic growth next year, saying that GDP will only increase by 2% — not 2.5% as previously suggested.

“The action to get the public finances back onto a sustainable footing will no doubt temper the recovery going into 2011,”

said CBI chief economic adviser, Ian McCafferty.

However, the CBI added that the prospect of returning to a recession was “unlikely”.

“The degree of uncertainty around the outlook remains high, but our view is that the UK’s tentative recovery will be sustained, albeit with weaker levels of growth,”

said CBI director general Richard Lambert.

“The fragile nature of the recovery is why, in the forthcoming Spending Review, the Government must focus its scarce resources on those areas which most galvanise growth ? namely infrastructure and capital investment.”

The CBI also forecast that consumer spending would be weaker than expected next year, due to modest wage rises and the January VAT rise to 20%.

The British Chambers of Commerce’s (BCC) chief economist, David Kern, said he supported the Government’s focus on spending cuts rather than tax rises.

“However, this policy will only achieve success if austerity measures are supplemented by support for businesses to enable them to deliver growth, investment and create jobs.”

Kern said interest rates, currently at 0.5%, must stay low for an extended period.

“Efforts must also be made to enhance productivity and rebuild infrastructure. New employment regulations must be avoided and where possible, existing ones should be scrapped.”

Commenting on how small firms should respond to the economic uncertainty, a BCC said:

“Small-business owners who are reluctant to invest in new equipment or take on new staff because of fears of a further downturn need to take a balanced approach.”

“Confidence is low, but businesses must look ahead so they are ready to respond when the market does pick up.”

Spending Cuts Will Slow Economic Recovery

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