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Recession: the worst may be over, says CBI


The recession deepened more than expected in the first three months of this year but this should prove to have been the worst of the quarterly falls in gross domestic product and the recession is expected to moderate in the second half of 2009, according to the CBI.

However, the recovery will be slow and fragile, with GDP growth resuming only in the spring of 2010.

Malcolm Hyde, director of CBI South East, 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 will 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.”

Revealing its latest economic forecast, the CBI said that the world economy had worsened since its last forecast in February, with further falls in global industrial output and the financial crisis continuing to frustrate businesses and governments.
It has therefore revised its GDP growth outlook for 2009 from -3.3% to -3.9%, reflecting a harsher quarter-on-quarter contraction of -1.8% for the first quarter of 2009.

However, the UK’s leading business organisation predicts that, aided by 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 of 0.2% in 2010 Q2.

The CBI also predicts that the economy will have shrunk by a total of 5.1% by the end of this recession, which is not as severe as the cumulative 5.9% seen in the slump of the early 1980s. 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%.