CBI urges government to focus resources to galvanise growth

The CBI has urged the coalition government to focus scarce resources on infrastructure and capital investment in a bid to offset proposed spending cuts that will dampen growth to lower than expected levels next year.
 
The lobby group considers that, while a double-dip recession is unlikely, the pace of recovery in 2011 will be more sluggish than previously anticipated. It has now revised its GDP forecasts for 2011 down to 2% from 2.5% in June as a result of the additional fiscal consolidation measures announced in the Emergency Budget.
 
Richard Lambert, the CBI’s director general, said: “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. 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.”
 
Higher inflation as a result of the VAT increase and continuing wage restraint meant that household spending would “be more constrained than previously thought,” added Ian McCafferty, the body’s chief economic advisor.
 
Although consumer spending was expected to increase at the end of this year before the government introduced higher VAT rates in January, growth was likely to be in the region of 0.9% for 2010 and an “equally anaemic” 1% in 2011.
 
Moreover, the recovery in business investment, although it stabilised this year after experiencing record falls in 2009, would remain “fairly subdued”, with only moderate growth in 2011.
 
The CBI predicted, however, that the UK economy would grow by 1.6% this year, up from its previous forecast in June of 1.3% due to better than expected growth in the second quarter as companies started rebuilding their stocks.