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King: No return to recession

Bank of England governor Mervyn King has said there will be no new recession in the UK and that the recovery is in sight.

"There is cause for optimism ... Today too the recovery is in sight. Although output has been broadly flat for the past two years, that masks a more encouraging underlying picture,” he said on Wednesday.

"The UK economy is therefore set for recovery. That isn't to say that the road ahead will be smooth. This hasn't been a normal recession and it won't be a normal recovery."

His views were echoed by employers’ group the Confederation of British Industry (CBI).

Director-general John Cridland said: "We are beginning to see the return of organic growth, with clear signs that firms offering the right products into the right markets are growing sales and expanding. Recent business surveys also give grounds for cautious optimism about our forward prospects."

The CBI expects the UK economy to grow 1% in 2013, less than its previous estimate of 1.4%, warning the potential for a new "flare-up" in eurozone tensions was likely to keep confidence and growth in check.

But it said a rise in job vacancies and an improvement in business sentiment since its last forecast suggested the economy would avoid another recession and grow 0.3% in the first quarter of this year.

No smooth road

But households should brace themselves for more pain as inflation is expected to rise to 3% or more by the summer and remain above the 2% target for another two years, the Bank said.

The CBI also highlighted the potential for eurozone tensions to flare up again, coupled with tough conditions in the domestic market, explained why business confidence remained patchy.

"After the uncertainties of 2012, the fear of external storm clouds lingers," CBI’s Cridland said.

This week it emerged that inflation was 2.7% for the fourth month in a row in January, with food and drink prices the biggest contributors to price rises.

[Source: Reuters]