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Economy may shrink by 5.1 per cent

The UK economy could shrink by more than five per cent by the end of the recession, according to the Confederation of British Industry (CBI).

The prediction comes in the CBI’s economic forecast which also predicts that up to 29,000 jobs will be lost in the city this year, with unemployment levels to peak at 3.25 million in the third quarter of 2010.

The trade body added, however, that it believes the worst of the current recession to be over after the economy shrank more than expected during the first quarter of this year. Although it expects the fall in gross domestic product (GDP) to moderate during the second half of this year, the CBI maintains that the economy will contract by between 3.3 per cent and 3.9 per cent for the whole of 2009. A slow and fragile economic recovery will then begin in the spring of next year, according to its forecast.

The trade body states that the UK’s economic performance will show positive quarter-on-quarter growth of 0.2 per cent in the second quarter of next year, fuelled by aggressive monetary policy, a weaker pound, low inflation and the fiscal support announced by many countries during the G20 summit.

Richard Lambert, 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."

Lambert urged chancellor Alistair Darling to avoid any further major fiscal boosts in the Budget, which he said should be targeted on jobs and investment, with a focus on efficiency savings and public service reform.

He added: "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."

This article is sourced from www.credittoday.co.uk

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