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No real recovery until 2010

The British economy is starting to stabilise but there will be no real recovery until at least 2010, according to the Confederation of British Industry (CBI).

The organisation suggests that the first three months of this year will turn out to be worse than subsequent quarters.

Richard Lambert, the CBI’s director-general, says: “Our forecast today tells us that 2009 is going to be a pretty bleak year, and that 2010 is not going to be that much better. But if you unpick it you will find that the first quarter of this year will be the worst by a margin, and that the economy will start to stabilise over the rest of this year.”

Towards the end of 2010 the country should have returned to a ‘respectable’ level of growth, Lambert adds.

In terms of Britain’s output, Lambert says the CBI expects to see a 2% decline in the first quarter. “The recession will last for five consecutive quarters. Peak to trough we will see a fall in output of 5%.” There is a large gap between Britain’s actual output and potential output, he adds.

However, unemployment, especially among the young, looks set to get worse. “Unemployment is a lagging indicator which continues to rise even after the economy has stabilised. It will continue to rise quite sharply over the course of this year. We hope the total figure won’t be as starkly bad as we felt in our last forecast three months ago,” he says.

The CBI also predicts that inflation will fall over the rest of the year, although not by as much as it should. “[Inflation will not fall by as much as we hoped it would] due to what’s happening to the oil price and other commodity prices. The oil price has doubled since Christmas eve and that will have an upward push,” says Lambert.

Britain’s GDP should flatten out during the second half of 2009 supported by low interest rates and quantitative easing, with quarter-on-quarter figures of -0.1% and 0% in the third and fourth quarters, and modest quarter-on-quarter growth of 0.1% and 0.3% in the first and second quarters of next year.

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CBI says British economy to shrink 3.9%
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