Brits tipped to avoid double-dip

Britain is set to avoid a double-dip recession but faces a long and painful climb back to pre-downturn levels of growth because of unprecedented cuts in Government spending, the country's leading business organisation said yesterday.

The CBI said it now expects Britain's economy to continue growing this year and next but warned that the recovery would be weak and driven only by the private sector.

The employers' group unveiled its latest forecasts for UK economic growth on the day that the Office of Budget Responsibility (OBR) is set to offer its prognosis for the future.

The OBR, set up by George Osborne last month, has prepared independent growth forecasts, which the Chancellor will use as he frames the emergency Budget scheduled for a week tomorrow.

The CBI said it expects the UK economy to grow at a rate of 1.3 per cent this year - slightly faster than the 1 per cent forecast made in March, but in line with an existing Treasury projection that sees growth at 1 to 1.5 per cent.

In 2011, however, the CBI predicts the economy will grow 2.5 per cent, while the Treasury has forecast 3.25 per cent.

The OBR, headed by Sir Alan Budd, a former senior Treasury civil servant and a founding member of the Bank of England's Monetary Policy Committee, is expected to revise that Treasury figure down today, almost certainly to a level much closer to the CBI's expectations.

Even these are more optimistic than the consensus opinion of independent forecasters, who predict growth of 2.2 per cent next year.

Capital Economics, the think tank, said this level of revision would mean the Government would face a sharply increased public sector borrowing requirement.

If the OBR were to predict growth of 2.5 per cent next year, the Government would have to borrow £8 billion ($16.9 billion) more than previously expected in this financial year alone. The extra borrowing needed would rise to £21 billion in the 2014-15 financial year.

"As a result, the Budget will probably have to incorporate measures building to £20 billion worth of tightening, if not more," said Roger Bootle, the managing director of Capital Economics.

"Additional cuts will account for at least some of this, though ... big tax rises are likely." Independent