The Bank of England looks set to hold off further economic stimulus in November because the economy is likely to avoid an overall contraction in 2012, a leading business lobby said on Thursday.
The Confederation of British Industry (CBI) said, however, that the recovery will remain sluggish and fraught with risks as the unresolved euro zone debt crisis weighs on business sentiment and investment decisions.
The economy would grow by 1.4 per cent next year after stagnating in 2012, the CBI forecast. In August, the body had predicted a 0.3 percent contraction for 2012 and growth of 1.2 per cent for 2013.
On monetary policy we have the central assumption of no further QE in November, partly due to the stronger Q3 numbers, Anna Leach, CBI head of economic analysis, told reporters.
But it remains on the table, particularly if the euro crisis takes another downturn over the next period.
British output grew 1 per cent between July and September, helped by one-off factors. This strong expansion prompted a number of economists to change their forecasts for the central bank's policy decision next week, with many expecting at least a pause in quantitative easing asset purchases.
A poll on Wednesday underlined this.
The economy will not enjoy the same help in the final quarter of this year, the CBI said, forecasting quarterly growth of only 0.2 per cent.
We are just beginning to see a little bit of genuine organic growth, said John Cridland, CBI Director-General.
The BoE's Funding for Lending scheme -- which provides cheap funding to banks if they keep up lending to households and businesses -- could help support the recovery, he said.
We are already seeing some impact on spreads and indeed on mortgages, he noted.
The lobby group stressed that risks around its latest economic outlook remained on the downside, with the persistent euro zone debt crisis and inflation among the main threats.
Rises in utility prices mean that British inflation is likely to be higher than previously thought, the CBI said, adding that consumer price increases would average 2.5 per cent in 2013, approaching the Bank of England's target of 2 percent by the end of next year, and come in at 2.1 per cent in 2014.