The U.K. economy is expected to see a modest pick up in activity next year after stagnating this year, though external risks will persist well into 2014, the Confederation of British Industry (CBI) said in its latest report.
The CBI said Thursday that the gross domestic product may record zero growth this year, slightly better than its previous forecast for a 0.3 percent contraction. In 2013, the industry group forecasts growth of up to 1.4 percent, marginally up from the 1.2 percent growth projected in August.
The economy exited recession in the third quarter, growing 1 percent sequentially, the fastest pace in five years. CBI expects growth to be only marginally positive at 0.2 percent in the fourth quarter without the impact of one-off distortions.
The CBI warned that the risks around the outlook remain on the downside amid the ongoing Eurozone crisis and concerns about the impact of inflation. The organization predicts GDP growth of 2 percent in 2014 with households, net trade, and investment expected to make a stronger contribution.
"While we expect underlying momentum to pick up modestly next year and to be slightly stronger in 2014, the pace will remain relatively lacklustre," CBI Director-General John Cridland said.
He cautioned that major external risks and risks to inflation will hit confidence and growth for some time to come. The CBI expects uncertainty on the international front to continue to act as a restraint to business investment growth this year and the next.
The CBI noted that the weak outlook for Eurozone growth continues to depress export prospects. Net trade is likely to be flat this year, followed by a 3.7 percent increase next year.
Inflation is expected to be somewhat higher than previously forecast through 2013 as a result of greater upward pressure than previously anticipated in the coming months from increases in utility prices. However, inflation is still forecast to be close to the 2 percent target.
The CBI predicts a small rise in unemployment in the first half of 2013, given its lagging nature and relatively weak economic performance in the first half of 2012. Labour market conditions are expected to improve steadily from the second half of 2013 and throughout the following year.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.