The UK’s recovery from recession is still a year away and will be “slow and fragile”, the CBI business group warned today.
The slowdown should ease in the second half of this year but only return to growth in spring 2010, it said.
Meanwhile, the Ernst & Young ITEM club, which bases its forecasts on the Treasury’s own economic model, also predicted a recovery next spring but a tough road ahead as unemployment soars past three million.
“Although one or two positive signs have started to appear, we face another 12 to 18 months of serious grief,” ITEM’s chief economic adviser Peter Spencer said.
Dougie Adams, economic adviser to the Ernst & Young Scottish ITEM Club, said: “While Scotland has so far dodged the worst of the fallout in the labour market, there is little hope of avoiding a sharp fall in employment and consequent rise in unemployment over the next two years.”
The forecasts come just days ahead of Chancellor Alistair Darling’s Budget, at which he is expected to say UK output will shrink by at least 3% this year.
This would represent the worst year for the economy since the end of World War II, but still falls short of the CBI’s even gloomier estimates.
The business group now expects the economy to have shrunk by 1.8% in the first three months of the year and contract by 3.9% over 2009 as a whole.
The economy should eventually return to growth in the second quarter of 2010, it adds, but advance by just 0.1% next year.
Unemployment will peak at 3.25million early next year, the CBI said.
CBI director general Richard Lambert said: “The UK economy remains deeply troubled, and the first quarter of this year has been tougher than expected.”
But the ITEM added that drastic moves by policymakers – with interest rates at a record low of 0.5% and the Bank of England em- barking on an unprecedented boost to the money supply through quantitative easing – gave grounds for optimism.
“This recession is unusual in terms of the degree of monetary and fiscal stimulus that has been applied. The whole kitchen sink has been thrown at the problem,” Mr Spencer added.
But ITEM also says that consumption will fall by almost 4% as worries over job security prompt households to build up a savings buffer.
If policymakers slam on the brakes too hard when the economy begins to grow again – through tax and interest rate hikes – then the recovery could be endangered, it adds.