Contractors have a key part to play in sustaining economic recovery, confirms the Confederation of British Industry (CBI), which has just downgraded its GDP growth projections for 2011 to 2.0%, down from the forecast of 2.5% in June.
According to the CBI, the reduced growth in 2011 will be as a result of falling consumer spending, as CBI Chief Economic Adviser Ian McCafferty explains: “Consumer spending will be more constrained than previously thought, due to higher inflation resulting from next January’s VAT rise, and wage increases continuing to be modest.”
Contractors provide a vital source of flexible skills, enabling UK firms to quickly increase capacity and output in response to demand, particularly for exports. The CBI says this is especially important now, as exports are driving the recovery and likely to make a net contribution to GDP in 2011.
Speaking to BBC News following the publication of the CBI’s forecast, the research director for international economics of independent research organisation Chatham House Paola Subbacchi said: “What is important is flexibility to adapt to change and difficult circumstances. In the UK I can see strengths because of the more flexible labour market.”
The CBI maintains its position that a double-dip recession is unlikely, but urges government to take action that will stimulate and sustain growth. “The degree of uncertainty around the outlook remains high, but our view is that the UK’s tentative recovery will be sustained, albeit with weaker levels of growth,” explains Richard Lambert, CBI Director General.
What is important is flexibility to adapt to change and difficult circumstances. In the UK I can see strengths because of the more flexible labour market
Paola Subbacchi, Chatham House
“The fragile nature of the recovery is why, in the forthcoming spending review, the Government must focus its scarce resources on those areas which most galvanise growth, namely infrastructure and capital investment,” continues Lambert.
There is more good news for contractors relying on industry sectors with high capital costs, and those with personal buy-to-let property portfolios, as the CBI forecasts interest rates are likely to rise later than expected, with rises starting in spring 2011and reaching a peak of 1.25% by the end of the year.