A gradual return

The CBI's economic forecast out today suggests that the economy will pick up only gradually and will not return to its trend rate of growth until 2007.

The CBI's March forecast follows better-than-expected GDP growth in the last quarter of 2005, but suggests this recovery will not be sustained. And the return towards trend growth will rely on an interest rate cut being made in the next few months.

Over the next two years, demand will be supported by Government expenditure and by a continued resilient performance of key export markets. Consumer spending growth will remain subdued into 2007 because of modest growth in disposable incomes, higher energy and utility bills and other debt burdens.

The CBI's forecast also points to only modest growth in business investment this year and next. The organisation remains concerned that this will still leave investment close to its current record low share of GDP. The CBI has called for the Chancellor to rein back business taxes in this week's Budget to improve competitiveness and help revive corporate investment.