By Catherine Boyle
The CBI said today that the worst of the UK recession was over but warned that there would be no recovery until this time next year.
The business group said that the recession worsened more quickly than expected in the first three months of 2009.
It expects the speed at which the economy is contracting to slow in the second half of this year.
However, the recovery is predicted to be “slow and fragile”, with growth in GDP beginning again in spring 2010.
The Ernst & Young ITEM club also predicted a recovery in spring 2010 but said that there would be a tough road ahead as unemployment rises above three million.
The CBI expects the number of jobless people to peak at 3.25 million in 2010.
Peter Spencer, ITEM’s chief economic adviser, said: “Although one or two positive signs have started to appear, we face another12 to 18 months of serious grief.”
The forecasts emerged two days before the Budget, which is expected to include moves to slash public spending by £15 billion.
Alistair Darling, the Chancellor, is predicted to say that UK output will shrink by at least 3 per cent this year.
The CBI has revised its GDP growth predictions for 2009 from -3.3 per cent to -3.9 per cent to reflect the worse than expected contraction of -1.8 per cent for the first quarter of 2009.
It expects that aggressive monetary policy, a weaker pound, low inflation and fiscal support packages will combine to help the rate of UK GDP decline slow through 2009 and make a fragile improvement to reach quarter-on-quarter growth of 0.2 per cent in April to June 2010.
There is also some comfort in its prediction that the economy will have shrunk by a total of 5.1 per cent by the end of this recession, less than the cumulative 5.9 per cent seen in the early 1980s recession.
Yet the average UK consumer is expected to continue to cut back on spending, with household consumption forecast to drop by 3.4 per cent this year and 0.4 per cent in 2010 as low inflation and job worries keep average earnings growth weak throughout 2009.
The ITEM Club says that consumption will fall by almost 4 per cent as people become more concerned about savings.
The CBI expects businesses to cut down on investment in the face of the recession, with business investment predicted to shrink by 9.3 per cent in 2009 and a further 3.4 per cent in 2010.
Richard Lambert, the 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.
“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.”
Vince Cable, the Liberal Democrat Treasury spokesman, said: “It is futile to get involved in a forecasting competition.
“All we can sensibly discuss is what is actually happening. That is unemployment growing rapidly, more and more families struggling to pay their mortgages, the growth of negative equity and an unrelenting budget deficit.
“We are undoubtedly in the middle of a major economic crisis, compounded by the reluctance of banks to lend.
“No amount of spinning by Government can avoid these simple, brutal economic facts which the Budget has to address.”
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