By Peter Wozniak
Britain faces a rough economic start to next year, but growth should pick by the end of 2011, the Confederation of British Industry (CBI) has argued.
CBI director-general Richard Lambert used his new year's message to warn of a "volatile" economic outlook for the first half of the year.
He said: "There are bumpy times ahead for businesses in Britain. Travelling around the country, I find that many people are positive about current trading conditions - but extremely uncertain about what the new year might bring.
"And that's understandable, because the economic and political outlook both seem volatile over the short term."
In remarks that will be viewed with dismay by ministers hoping for rapid recovery, Mr Lambert argued that a combination of the VAT increase due to come into force tomorrow with the first impacts of public sector cuts will slam the brakes on growth.
But would not cause the much-feared 'double dip' recession, he added.
The head of the lobby group also warned that political uncertainties would add to Britain's economic doldrums in the first half of the year.
Mr Lambert continued: "Spring will bring local authority elections in England, national elections in Scotland and Wales, and the promised referendum on voting reform. At the same time, welfare cuts will be starting to bite.
"You can easily imagine the screaming news headlines: about the threat of a double-dip recession; about strains on the coalition government; about protests in the streets.
"All this will be playing out against the background of continuing turmoil in the Eurozone. The direct exposure of our banks to the most troubled countries is quite modest.
"But recovery prospects in the UK would certainly be damaged if the contagion were to spread across our major trading partners in the European Union."
The government can however take some heart from the CBI's caveats on its gloomy predictions.
Although Mr Lambert warned of rocky and unimpressive growth in 2011, he claimed that private sector businesses are beginning to recover confidence in the wake of the recession and would be more able to help drive recovery from the end of next year in spite of public sector cuts.
The CBI predicts overall growth of two per cent next year and 2.4% in 2012, figures which, Mr Lambert said, would be "enough to keep unemployment under control and the public finances on track".
He ended on a positive note about the UK's long term economic prospects, adding: "The good news here is that export orders are strengthening, and our surveys of investment intentions in both the manufacturing and services sector are also picking up sharply from a low base.
"After three years in which the emphasis has been heavily concentrated on cost cutting, business people are once more beginning to think about growth.
"It all comes down to confidence. Of course there are lots of risks and uncertainties ahead, especially in the next few months. But with company balance sheets in reasonable shape and interest rates staying low, 2011 could also be a year of opportunity."