CEBR forecasts 50-50 chance of triple dip

Economy watcher's predictions for 2013 express cautious optimism, but warn triple-dip scenario is a possibility

In its annual look at the year ahead, economy watcher the Centre for Economics and Business Research (CEBR) warned of a potential triple-dip recession for the UK economy.

The organisation's Top 10 Predictions for 2013 covers everything from the performance of the new Bank of England governor to the continuing fallout in the eurozone, and even sporting outcomes such as who will win the Premiership and the Six Nations, and who will take home the Ashes this year.

It admitted to getting a few things wrong last year – saying it was "delighted" that its Olympic failure forecast was wrong, and also its Euro predictions were slightly off kilter, but it was right on its predictions on the US economy, the Euro recession, the UK recession, the Asian slowdown and the squeeze on UK household incomes.

Below are the CEBR's top predictions for the coming year.

• This could be the year when the splits between the UK and other EU member states turn into something politically serious. It looks like a marriage where the love has gone both parties are starting to sleep on the far sides of the bed. Oddly, rather than the other way around, it could be that the prospect of a UK exit triggers the euro breakup.
• Asia could bounce back a bit after the world’s main growth machine of recent times spluttered in 2012. Since the political succession was sorted out in China, they have been pushing the levers in favour of economic growth. Structural and long-term problems remain, but these may be overtaken in 2013 by extra demand from China. And Japan, with a new aggressive government, is likely to try reflation before anything else.
• Despite brinkmanship, the US reaches a deal on deficit reduction after stopping the clocks to meet the deadline. Congress and the White House agree to cut the deficit by about one per cent per annum. Split between one third tax rises, two thirds spending cuts.
• The UK will probably have negative growth in Q4 2012 and there must be a chance of a weak Q1 2013 as well, although data from the ICAEW Grant Thornton Business Confidence Monitor and FSB Small Business Index have been encouraging enough to suppose there are cautious grounds for optimism going into 2013. So CEBR gives a 50-50 chance on a triple dip.
• Inflation will remain above the Bank of England’s two per cent target throughout 2013 as utility price rises feed through.
• The UK’s labour market will continue to respond flexibly to the economic environment; the underemployed rather than pervasively unemployed workforce will experience another year of very slow pay growth, with average pay growth again failing to surpass the two per cent mark.
• With personal allowances rising, overall real household disposable incomes will rise slightly in 2013, but probably not enough to offset the increase in the number of households, so per capita real incomes will be about flat as the squeeze on households continues.
• The new governor of the Bank of England, Mark Carney, will use his powerful first six months to reformat monetary policy and negotiate a truce on banker bashing. Despite this, the year for the City will be less bad than 2012 but bonuses early in the year will be much in line with those in other businesses, and salaries will edge down closer to reality. The "flat white economy" of internet and media businesses will have another bumper year.
• The Funding for Lending scheme should start to have a more positive effect on the real economy; the economy should see mortgage lending volumes starting to pick up, but the CEBR expects only a marginal increase in house prices across the UK and the disparities across the country are bound to persist, with London and the South East’s housing shortage serving to push up prices but weaker parts of the UK economy such as Northern Ireland suffering continued declines.
• After the incredible summer of sport in 2012, with Bradley Wiggins, Rory McIlroy and Andy Murray adding to the lustre of the Olympic and Paralympic athletes, 2013 may seem tame. But there should be a fascinating Ashes series. The result will probably depend on whose players are fit enough to play, but the odds are slightly in favour of England. France looks an odds-on bet for the Six Nations. Manchester United ought to win the Premiership.