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Economic recovery ‘on track’ but slow

The UK economy is making progress towards recovery, but the rate of growth is likely to remain sluggish, the CBI has said.

In its latest economic forecast, the employers’ group has predicted slightly faster expansion for 2010 on the back of a pick-up in manufacturing output.

The CBI has revised its projected growth rate for the economy this year upwards to 1.3 per cent. Its March forecast was for 1 per cent growth.

The slight upward revision has been fuelled by industrial production, which has shown solid growth, and by overseas demand for UK-made goods.

The CBI’s GDP forecast for 2011 remains unchanged at 2.5 per cent.

Breaking the figures down on a quarterly basis, the CBI said it expects the economy to grow by 0.8 per cent in the second quarter of 2010, followed by slower rates of 0.5 per cent and 0.4 per cent in the latter half of 2010.

Quarterly growth is then forecast to pick up slightly from 0.6 per cent to 0.8 per cent over the course of 2011.

However, the report warned that the outlook remains uncertain, particularly with government spending expected to fall sharply.

Richard Lambert, the CBI’s director-general, said: “Over the last three months the political and economic backdrop at home and abroad has shifted dramatically.

“Turbulence has returned to global financial markets as concerns about European sovereign debts have intensified, underlining the need for the UK to tackle its large budget deficit urgently.”

The CBI believes that, although the risks to the economic outlook have increased, the UK’s tentative recovery will be sustained. However, economic growth will be weak and it probably won’t return to pre-recession GDP levels until 2012.

Mr Lambert added: “It is clear that the private sector will have to be the main driver of economic growth to offset lower government spending. It is therefore essential that next week’s emergency Budget creates the right conditions for businesses to drive growth and create new jobs, as well as setting out bold action to repair the public finances.”