Page last updated at 09:35 GMT, Monday, 21 December 2009

CBI predicts 'fragile' UK economic recovery

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The CBI expects unemployment to peak at 2.8 million

Growth in the UK economy is set to pick up gradually next year but the economic recovery will be "fragile", a leading business group has said.

The CBI predicts that the UK will exit recession in the fourth quarter of 2009, helped by consumer spending ahead of the VAT rise in January.

But the group says the economy is unlikely to have returned to pre-recession levels by the end of 2011.

It says unemployment will peak at 2.8 million - lower than first forecast.

"Although the first few months of 2010 will be difficult, growth will gradually pick up and increasing confidence and demand will lead the UK into a more positive 2011," said John Cridland, the CBI's deputy director general.

"Consumer spending looks to be slightly more resilient than we first thought, and a weaker pound will help to support export growth.

"However, the economy will be on a fragile path of very slow growth, as we continue to feel the lasting effects of the financial crisis."

Growth forecasts

The CBI's latest quarterly economic survey forecasts:

• a return to growth in the fourth quarter of this year, with the economy growing 0.5% quarter-on-quarter

• annual growth of 1.2% in 2010, followed by growth of 2.5% in 2011

• after "constrained wage growth" during 2009 and 2010, average earnings will rise by 3.9% in 2011

• UK interest rates to start rising in spring next year, reaching 2% by the end of 2010

• the consumer prices index level of inflation to rise sharply following the rise in VAT in January, before easing back and falling below the Bank of England's target rate of 2% in 2011

• oil prices to rise to almost $100 a barrel by the end of 2011 "as the global economy recovers with a relatively limited oil supply".

The group's forecast for the economy is slightly more optimistic than that of the British Chambers of Commerce (BCC).

The BCC predicts positive growth of 1% in 2010 and 2.3% in 2011.

The Treasury expects economic expansion of 1.25% in the fiscal year 2010, rising to 3.5% in each of the following two years.

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