No UK recovery until 2003, says CBI

Consumer spending to fall next year, says CBI

The UK economy is unlikely to return to normal growth until the year after next, UK industry chiefs have said.

Growth in the UK economy will bottom out at 1.7% next year, rising to 2.6% in 2003, the Confederation of British Industry (CBI) has said in its latest forecast report.

However, the recovery is unlikely to last unless other major economies emerge from the global downturn at about the same time.

"We should see the economy start to rally towards 2003, but the strength of this relies heavily on the timing and momentum of the recoveries in the US and Europe," said CBI chief economic adviser Ian McCafferty.

The CBI said it had cut its 2002 growth forecast, previously 2.5%, to account for the impact of the 11 September attacks.

Further rate cut needed

The UK is unlikely to slip into a full-blown recession, but companies exposed to the global slowdown will continue to feel the pinch until the end of next year, the report said.

The manufacturing sector will continue to slow in 2002, while consumer spending growth - the economy's main growth driver - is expected to decline to 1.9%, down from 3.9% this year.

The CBI predicted that the Bank of England will cut interest rates one more time to 3.75% early next year, and that the cost of borrowing will return to about 5% in 2003.

The BoE has cut rates seven times since February this year in a bid to stimulate the flagging economy.

Manufacturing in recession

A separate CBI manufacturing survey released on Thursday showed that the number of exporters reporting below normal orders had risen to its highest level in three years.

A majority of manufacturers expected output to fall further between now and the middle of next year, while more than a third were preparing for a decline in factory gate prices during the same period.

The aerospace, metal manufacturing, and electrical engineering sectors will be worst hit, the CBI said.

"Expectations of a further fall in output confirm that manufacturing will remain in recession into the New Year," said Sudhir Junankar, the CBI's associate director of economic analysis.