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CBI forecasts 'pick up' in recovery

A leading business organisation has moved to lift some of the gloom hanging over the UK economy by forecasting a "pick up" in the recovery over the rest of the year.

The CBI cut its growth forecast for 2012 to 0.6%, from 0.9% estimated in February, after official figures revealed the economy fell back into recession in the first three months of the year.

But the lobby group, which represents some 240,000 UK companies, insisted optimism among businesses had been increasing and manufacturing demand had held up, pointing towards increased momentum in the second half of the year.

A slide in construction output and a weak services sector were blamed for a surprise 0.2% dip in gross domestic product between January and March, which, after a fall of 0.3% the previous quarter, caused the UK's first double-dip recession since the 1970s.

John Cridland, CBI director-general, said: "We have always said that the path back to sustainable economic growth will be a long and difficult one, with many bumps along the way. To re-balance our economy towards exports and investment will take time and patience."

He added: "Optimism among businesses has been increasing since the turn of the year, with manufacturing demand holding up. And that is beginning to translate into more jobs and investment."

However Mr Cridland warned the global economy continued to pose a number of challenges, including through eurozone worries, high oil prices and fragile household confidence.

The CBI believes public sector borrowing will be £8 billion higher than forecast by the tax and spending watchdog, the Office for Budget Responsibility, at £128.2 billion in 2012/2013 and £104.1 billion in 2013/14. Interest rates are expected to remain unchanged until the final quarter of 2013, the CBI added.

The CBI forecasts flat growth for the second quarter, affected by the impact of the additional bank holiday for the Diamond Jubilee. However, it said there would be an improvement in the second half of the year, with growth of 0.7% and 0.5% in the final two quarters respectively.

Household spending would remain subdued with weak wage growth, and unemployment rising to a peak of 2.86 million in the first quarter of 2013. Exports are forecast to see a small rise this year, affected by lower levels of economic activity in the eurozone, the UK's biggest trading partner.

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