Britain will avoid recession – CBI

Output fell by 0.2 per cent in the last three months of 2011. If it declines again in the first quarter of 2012, Britain would be in recession – defined as six months of falling growth.

The Confederation of British Industry (CBI) expects growth to rise by 0.2 per cent in the first three months of this year. The optimism is a result of industry surveys showing that businesses are comparatively bullish about their prospects.

The Office for Budget Responsibility, whose forecasts are used by the government, also believes Britain will avoid recession.

But Chris Scicluna, head of economic research at the Japanese investment bank, Daiwa Europe, said he expected negative growth in the first three months of 2012 and zero growth across the whole year.

The key point is the economy is going nowhere and has gone nowhere since the crash of 2008. Chris Scicluna, Daiwa Europe

‘Going nowhere’

Mr Scicluna, who has worked for the Treasury and the European Commission, told Channel 4 News that whether the economy grew or declined very slightly in the current quarter was not the point; the issue was years of subdued growth.

“The key point is the economy is going nowhere and has gone nowhere since the crash of 2008. The level of output is down 4 per cent since 2008. Looking at the economy, the problem is it’s not recovering that lost ground for three years at least.”

The CBI has lowered its growth forecast for the whole of 2012 from 1.2 to 0.9 per cent.

Unemployment

With the latest monthly inflation figures published on Tuesday, the organisation expects the cost of living to fall to 2.2 per cent by the end of 2012 and stay close to the Bank of England’s 2 per cent target in 2013.

It predicts that unemployment will rise, a view shared by the Chartered Institute of Personnel and Development, which believes it could reach 2.85 million.

Mr Scicluna said: “”We really need to break out of this morinund trend to avoid scarring in the labour force – a lost generation of workers – and because companies will revise down further their investment plans on the assumption of weaker growth.”

‘Tough conditions’

CBI Director General John Cridland said: “Economic conditions will continue to be tough, especially in the first half of the year and the UK recovery will depend on the successful resolution of the eurozone crisis.

“The pressure on household incomes will also ease slightly in the second half of this year as inflation falls, resulting in a slight increase in consumer spending. But weak wage growth and high levels of unemployment will continue to be a brake on household spending.”

Bank lending
Britain’s biggest banks narrowly missed their lending targets in 2011. Under the Project Merlin agreement with the government, Lloyds Banking Group, Royal Bank of Scotland (RBS), Santander, Barclays and HSBC had agreed to lend smaller businesses £76bn.

They missed this target by £1.1bn, but beat their lending target for all businesses by £24.9bn.

Four of the banks succeeded in meeting their lending targets for smaller businesses, but RBS, which is 83 per cent owned by the taxpayer, fell short. Despite only just missing their combined lending target, lending fell in 2011 compared with 2010.

The CBI’s expectations are at odds with many other forecasters.

On 3 February, the National Institute of Economic and Social Research said Britain was likely to enter recession, with output falling by 0.1 per cent across the whole of 2012.

In January, the Centre for Economics and Business Research (CEBR) and the Ernst & Young ITEM Club said they expected Britain to go through a shallow recession. The OECD think tank also predicts a recession.

But while these organisations expect two quarters of negative growth, they predict that output will rise slightly across the whole of 2012. In contrast, the CEBR expects output to decline.The gloomiest forecast is from Capital Economics, which predicts recession and a 0.5 per cent decline in output in 2012.