A major business lobby group predicted yesterday that the worst of the UK’s recession may be over, but growth would only resume next year, in a forecast just days before ministers unveil a crunch budget.
The Confederation of British Industry (CBI) said the recession was deeper than expected in the first three months of this year, sparking an estimated contraction of 3.9 percent over the whole of this year, and warned the UK faces a “slow and fragile” recovery.
British Finance Minister Alistair Darling unveils his annual budget, including this year and next year’s tax and spending plans, tomorrow, and is expected to rip up his economic growth projections as Britain faces its first recession since 1991.
In November, Darling had predicted the economy would contract by up to 1.25 percent this year and rebound with growth of up to 2 percent next year.
The CBI said the world economy had worsened since its last forecast in February, and predicted Britain’s economy had contracted by 1.8 percent quarter-on-quarter in the first three months of this year.
But with an aggressive monetary policy, a weaker pound, low inflation and fiscal stimulus packages across the world, the rate of decline would slow and growth of 0.2 percent could return by the second quarter of next year, it said.
“In these turbulent times it is difficult to build a clear picture of how the economy will perform,” CBI director-general Richard Lambert said.
“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, Lambert said.
“The recession is by no means over, but we see a return to very weak growth by spring 2010.”
The CBI forecast that unemployment would peak at 3.25 million early next year, while inflation would fall below the Bank of England’s target of 2 percent later this year and remain below target throughout next year.
Darling sought to boost public confidence ahead of Wednesday’s budget with a video message posted on YouTube on Sunday, saying he had two main aims.
“One is to help people now, through this difficult time,” he said.
“But equally importantly, we’ve got to prepare for the future, to invest in Britain’s future to ensure that we can take advantage of the upturn, of the recovery when it comes, and it will come,” he said.
“I’m confident about that because I think we have underlying strengths that we can play to and I want to build on those so there are jobs and good prospects for the future,” Lambert said.