Britain is narrowly to avoid plunging back into recession, the Confederation of British Industry (CBI) has forecast - as it warned that the fate of the UK economy was tied to that of the eurozone.
The CBI predicted on Monday that Britain's economy would start growing again in the first three months of 2012, avoiding the two consecutive quarters of contraction that would technically constitute recession.
The economy shrank by 0.2pc in the final three months of 2011, a greater-than-forecast decline that raised fears of a 'double-dip' recession.
The CBI forecasts "fragile" 0.2pc growth in the first quarter of 2012, with John Cridland, its director general, reporting that "some activity has picked-up since before Christmas and the mood among many businesses has improved". However, the CBI cut its growth outlook for the year to 0.9pc, down from the 1.2pc forecast in November (Stuttgart: A0Z24E - news) , to reflect the worse-than-expected data for last quarter.
It warned that "high levels of uncertainty" around the economic outlook, driven by the eurozone crisis, would see growth remain at a subdued 0.2pc in the second quarter.
Mr Cridland said: "Economic conditions will continue to be tough, especially in the first half of the year, and the UK recovery will depend on the successful resolution of the Eurozone crisis."
Growth should pick up later in the year, however, with the CBI forecasting 0.6pc in the third quarter and 0.5pc in the fourth, 2013 could see growth of 2pc, it predicted.
Mr Cridland said: "Although risks remain we expect growth this year, improving modestly in 2013, primarily driven by positive net trade and business investment.
"The pressure on household incomes will also ease slightly in the second half of this year as inflation falls, resulting in a slight increase in consumer spending. But weak wage growth and high levels of unemployment will continue to be a brake on household spending."
The CBI forecasts unemployment will peak at 2.9m in the first quarter of 2013.
Ian McCafferty, CBI chief economic adviser, said: "The ECB's decision to inject more liquidity into the system has reduced the chance of a banking crisis. There are also tentative signs of a stabilisation in economic activity in the 'core' countries which account for a large proportion of UK exports."
Growth forecasts remain conflicting, however, with accountancy firm BDO yesterday predicting the UK had "already very likely entered a technical recession" - albeit a shallower one than in 2008-09. Its (Euronext: ALITS.NX - news) Output Index, measuring turnover expectations three months ahead, remained below its growth benchmark for six months.
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