In its latest economic forecast the CBI has slashed its growth predictions for this year and next, in the face of a sharper than expected downturn over the first half of 2008.
The growth forecast for 2008 has been downgraded form 1.7% to 1.1%, with economic output expected to shrink by 0.2% quarter-on-quarter between July and September. This will be followed by a further 0.1% decline in Q4 2008.
For 2009 as a whole, the GDP growth forecast has been shaved by 1% in the space of three months, going from 1.3% last quarter to just 0.3%.
In addition the CBI forecasts that unemployment will reach 2.01 million next year, representing an unemployed rate of 6.5%.
Richard Lambert, director-general of the CBI, says: “Over the past year our forecasts for economic growth have been shaved lower and lower as the UK economy continues to struggle with the twin impact of higher energy and commodity prices and the credit crunch. Growth in 2009 will be feeble at best.”
But he adds: “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 CBI is advocating cuts to bring the base rate to 4% in the spring.
Lambert says: “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.”