End of VAT reduction 'will push down on growth'

Date: 23rd September 2009

Britain's economy is out of recession, but growth is likely to be stymied by the end of the VAT cut.

This is the view of the Confederation of British Industry (CBI), which released new forecasts for future economic trends today (September 23rd).

According to the business group, the weak pound and the Bank of England's quantitative easing policy have helped to pull the UK out of recession, with the economy set to grow by 0.3 per cent over the third quarter.

However, fourth quarter growth of 0.4 per cent is forecast to be followed by an expansion of just 0.1 per cent over the first three months of 2010.

In January, VAT will revert to 17.5 per cent - after having been cut to 15 per cent last year by chancellor of the exchequer Alistair Darling.

The group predicted a sales bump prior to the end of the year as consumers rush to take advantage of the lower sales tax rate to buy big ticket items such as fridges and furniture.

CBI director general Richard Lambert added: "Although growth this quarter should mark the end of the recession, conditions in the UK will remain tough for some time yet, and it is difficult to see where demand growth will come from."