The Confederation of British Industry on Wednesday urged Chancellor George Osborne to continue austerity measures to safeguard Britain's prestigious AAA credit rating. The leading business lobbying group also slashed its GDP projections to 0.9 per cent in 2011 and 1.2 per cent in 2012, down from its previous projections of 1.3 per cent and 2.2 per cent, respectively.
The downgrade is attributed to the uncertainty in the eurozone and the resultant negative prospects for trade and lower business confidence in the UK economy.
The continuing fiscal instability in the eurozone and the weak domestic economic performances are adversely impacting the business confidence of the corporate sector, making the recovery difficult for the UK economy. CBI forecasts a flat quarter on quarter GDP growth in Q4, 2011, and a slightly higher 0.2 percent growth in the first quarter 2012.
"The government must stick to its plans to bring down the deficit to maintain confidence in the UK's public finances and keep the cost of borrowing down," said John Cridland, CBI director-general.
Total business investment is expected to grow by just 0.6 per cent in 2011, down from 3.7 per cent in the previous forecast, and 6.9 per cent in 2012, down from 9.3 per cent, predicts CBI.
"The recent turbulence in the Eurozone has seriously dented business confidence, which has led to a reappraisal of investment and export prospects," said Ian McCafferty, CBI's chief economic advisor.
In its latest quarterly economic forecast, CBI predicts the rise in unemployment to continue over the next year, peaking at 2.75 milion in Q4, 2012. To help continue growth, CBI is urging the government to initiate a series of actions, like increased investment in infrastructure and employment, to boost the economy.