CBI sounds warning on consumer spending in 2011

Hospitality operators will endure a miserable start to next year, with the CBI predicting consumers will tighten their belts after a splurge in the final months of 2010.

In its latest economic forecast, the CBI says the UK recovery this year has been better than expected and that this is set to continue in the remaining months as the public continues to spend ahead of next year's VAT hike to 20%.

However, in 2011, with the cuts and subsequent job losses in the public sector to come following next month's governmental spending review, consumers will rein in their expenditure sharply.

The CBI has revised down its GDP forecast for 2011 to 2% from 2.5% in June as a direct consequence of this, and expects a sluggish recovery next year, although a double dip recession will be avoided.

Ian McCafferty, CBI chief economic adviser, said: "The action to get the public finances back onto a sustainable footing will no doubt temper the recovery going into 2011.

"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."

The CBI expects UK unemployment to increase from 2.49 million at the end of this year to 2.62 million at the end of 2011.

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By Chris Druce

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