Recession to loosen grip in second half of 2009, CBI claims

The recession is expected to ease off in the second half of 2009, with the first three months of the year revealing a worse than expected performance by the UK economy, according to the CBI.

But recovery will be slow and fragile, with GDP growth resuming in the spring of 2010, the UK’s top business organisation claimed.

Due to a combination of an aggressive monetary policy, a weaker pound, low inflation and the fiscal support announced by many countries, the rate of UK GDP decline will slow through 2009 and make a fragile improvement to reach positive quarter-on-quarter growth on 0.2 per cent in Q2 2010.

Richard Lambert, director-general of the CBI, said: “The UK economy remains deeply troubled, and the first quarter of this year has been tougher than expected. Firms have been running down their stocks of completed goods, and that is having a real impact on output, jobs and investment. Anxious consumers are spending less and building a savings buffer.

"In these turbulent times it is difficult to build a clear picture of how the economy will perform, but there are a few tentative signs that the steepest phase of the recession is now behind us, and that the banking packages, aggressive monetary policy and fiscal support will steady the pace of decline from here on. The recession is by no means over, but we see a return to very weak growth by spring 2010.

"Given falling tax revenues, the shrinking economy, and alarming levels of government debt, we urge the Chancellor to avoid any further major fiscal boosts in the Budget. Budget measures should be targeted on jobs and investment, with a focus on efficiency savings and public service reform," he said.

The CBI predicts that the economy will have shrunk by a total of 5.1 per cent by the end of this recession, which is not as severe as the cumulative 5.9 per cent seen in the early 1980s recession. The recession is expected to last until the end of 2009, marking six consecutive quarterly falls in GDP. Sluggish growth will resume in 2010 Q2, picking up slowly over the course of the year, giving an annual average for 2010 as a whole of GDP growth of 0.1 per cent.

The organisation also predicted that businesses will continue to scale back on investment in the face of the recession, and business investment is expected to shrink by 9.3 per cent over 2009 and a further 3.4 per cent in 2010.