Contractors working for either Umbrella Companies or Limited Companies are all too aware that future work prospects depend on economic growth. Most will know that the Office for Budget Responsibility (OBR) lowered its growth forecast for the UK’s economy in 2011 recently from 2.4 per cent to 2.1 per cent. Now the Confederation of British Industry (CBI) is adding its voice to the chorus of other predictions suggesting that growth next year will be slower than projected earlier in 2010.

In the first quarter of 2011, the employers group predicts, growth will increase by just 0.2 per cent, a fall from the 0.3 per cent the organisation had previously anticipated. Overall, the economy will grow by 2.0 per cent per year, reaching 2.4 per cent in 2012.

The first few months of 2011 are likely to be especially sluggish, however. The CBI believes that consumer spending will inevitably be adversely affected by the government’s hike in VAT charges, a move which it anticipates will diminish growth to 0.2 per cent quarter on quarter.

Commenting on the forecast, the CBI’s chief economic adviser, Ian McCafferty, noted that the UK economy had experienced unusually strong growth during 2010 which had exceeded expectations, especially since this was the first year out of recession. But such a pace is not expected to continue over the next two years, as spending cuts and VAT rises work their way into the economy.

Anticipating the VAT rise, which comes into effect on 4th January 2011, the Professional Contractors Group (PCG) issued advice in September to contractors and other small businesses on how to prepare for the increase.

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