Optimism – despite growth prospects

The CBI forecasts that Government borrowing will rise as slower-than-expected growth affects tax revenues, adding that the extra Bank Holiday for the Queen’s Diamond Jubilee is likely to cause growth to remain unchanged in the second quarter.

In its quarterly economic forecast published last Thursday, the CBI said the sluggish start to 2012 will result in activity expanding by just 0.6% this year and lead to a budget deficit
£6 billion-£8 billion greater than predicted by George Osborne in his March Budget. The CBI said net borrowing in the 2012-13 financial year will be £128.2 billion, compared with the £120 billion forecast by the independent Office for Budget Responsibility.

However, John Cridland, the CBI’s director-general, said that he remained confident that the economy would grow by 0.6% this year, accelerating to 2% in 2013. “Optimism among businesses has been increasing since the turn of the year, with manufacturing demand holding up. That is beginning to translate into more jobs and investment.” He added that he had always thought it would take the UK a long time to recover from the deep slump of 2008-09, but admitted to being surprised by the weak performance of the last 12 months. “It has been a year or more of disappointed expectations, a series of things have happened where the headwinds have been stronger than expected.”

Meanwhile, the latest Markit/CIPS purchasing managers’ index (PMI) reports that growth in the UK manufacturing sector slowed in April. The PMI dropped to 50.5 in April, down from 51.9 in March (any figure about 50 indicates an expansion of the sector). April’s figure was the fifth consecutive month of growth. Lee Hopley, chief economist at the EEF, said: “Ever-present euro-zone woes are still bearing down on the short-term outlook, with some suggestion of renewed downward pressure on export orders over the past month. The ability of UK manufacturers to tap into global demand has been an important source of growth and, without this engine, the uncertainty about whether we can regain significant momentum behind the recovery will remain.”