Recession warning from CBI 

16 September 2008

The CBI has predicted that the UK economy faces a shallow' recession in the second half of this year.

According to the employers' group's latest economic forecast, output will shrink by 0.2 per cent quarter-on-quarter between July and September, followed by a further 0.1 per cent decline in the fourth quarter.

A recession is technically defined as two successive quarters of negative growth.

The CBI cut its estimates for annual growth in 2008 from a modest 1.7 per cent down to 1.1 per cent.

The CBI said that, though growth should stabilize in 2009, the economy will still only expand by weak 0.3 per cent next year.

The sharper-than-expected slowdown over the first half of this year and the impact of weak consumer demand, high energy and commodity prices and the enduring effects of the credit crunch were blamed for the revised figures.

Inflation is expected to peak at 4.8 per cent this quarter before falling back during 2009 to somewhere close to its target level of 2 per cent.

Matters look grimmer on the employment front, with the CBI report suggesting that the jobless total could breach the two million mark next year.

However, Richard Lambert, the CBI's director general, said that the recession would not be as profound as that which hit the economy in the 1990s.

Mr Lambert commented: "Having experienced a rapid loss of momentum in the economy over the first half of 2008, the UK may have entered a mild recession that will hopefully prove short lived. This is not a return to the 1990s, when job cuts and a slump in demand were far more prolonged."

"The squeeze on household incomes and company profit margins from higher costs will begin to ease as the price of oil moves downwards and, although the credit crunch will be with us for some time, conditions are set to improve later in 2009."

Mr Lambert also forecast a likely cut in the cost of borrowing.

He added: "The Bank [of England] should have leeway to cut interest rates and, as inflation falls, we should be well placed to move beyond this difficult stage in the business cycle. If all goes well there should be room for a half point cut in November to help restore confidence in the beleaguered economy."

Content by:    

• Business Made Simple