Economic recovery will be slow and gradual
The CBI warned today that the UK’s return to health will be ‘slow and gradual’ and that economic growth would not occur until the start of next year.
The business lobby group said some commentators had been too quick to seize on recent positive indicators as evidence of green shoots in the economy.
CBI director general Richard Lambert said it will take some time before the UK can be sure those shoots have ‘roots we can depend on’ for sustainable growth.
The organisation predicts that GDP, supported by low interest rates, will flatten out during the second half of 2009.
It said this would be followed by modest quarter-on-quarter growth of 0.1 per cent and 0.3 per cent in the first two quarters of 2010.
By the end of the recession, the CBI said the economy will have shrunk by a cumulative 4.8 per cent – not as severe as the 5.9 per cent in the early 1980s
And while the harshest period of the recession looks to be over, Mr Lambert said the UK economy now faced a period of stabilisation.
He said: ‘The return to growth is likely to be a slow and gradual one; difficult credit conditions are still affecting business behaviour.
‘For positive growth to return, lenders need to feel more confident so that credit can start flowing again.’
The CBI said the UK’s labour market had been more flexible than hoped, with many more private sector employees accepting wage freezes and shorter working hours than in previous downturns.
It predicted this move should help limit the pace of job losses through 2009, with the CBI now expecting unemployment to peak at 3.03 million – a rate of 9.6 p-er cent – in the second quarter of 2010.
Consumer spending will still be constrained by the rise in unemployment and a more elevated savings ratio and only modest increases in incomes.
The CBI’s chief economic adviser Ian McCafferty said: ‘For consumers, some of the worst fears of earlier in the year may now not be realised, but they will still face tough times as higher saving and lower income eat in to their ability to spend.’
Recovery hopes have been boosted by estimates from the National Institute of Economic and Social Research suggesting the UK returned to growth in April, as well as signs of life from manufacturing and services firms.
But other experts have predicted a long, hard slog ahead for consumers as households work to pay off the debts built up in the boom years
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