CBI downgrades growth forecast
The UK economy will grow just 0.2% in the first quarter of 2011, as Government job cuts and higher-than-expected inflation slow the recovery.
Industry body CBI downgraded its forecast for quarterly growth in the first three months of the year from 0.3%, but said it did not expect the UK to fall back into recession.
The growth should gather pace to 0.4% in the second quarter and 0.5% for each of the third and fourth quarters, giving a 2% annual growth rate for the year.
The CBI also made its first estimate for gross domestic product (GDP) growth in 2012, which it expects to be 2.4%, which it said was slower than usual for the third year of a recovery from recession.
The UK's economy has shown strong growth in 2010, with quarterly GDP having grown 0.4%, 1.2% and 0.8% in the first three quarters, and expected to grow by 0.5% in the fourth quarter.
The sluggish growth in the first quarter of 2011 will be caused by consumers reacting to the increase in VAT from 17.5% to 20% on January 4 and by the Government making redundancies.
The CBI expects inflation to be higher than forecast throughout 2011, as energy and commodity prices remain high and push up household bills.
Consumer price inflation (CPI) will remain above the Bank of England's (BoE) 2% target for the whole of 2011 and will dip below target at the start of 2012 before finishing 2012 at 2.4%, according to the CBI's forecast.
Inflation has already been above 2% for 12 months in a row and is currently at 3.3%.
The continued high inflation next year will force the BoE to gradually raise interest rates in the spring and the base rate will hit 2.75% by the final quarter of 2012.