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Worst of recession over, says CBI

The UK recession was more extreme than expected in the first three months of 2009, but the Confederation of British Industry says the worst is behind us.

It predicts the recession will moderate in the second half of 2009, but the recovery will be slow and fragile, with gross domestic product growth resuming only in the spring of 2010.

It says the world economy had worsened since its last forecast in February, with further falls in global industrial output and the financial crisis continuing to frustrate businesses and governments.

It has therefore revised its GDP growth outlook for 2009 from -3.3% to -3.9%, reflecting a harsher quarter-on-quarter contraction of -1.8% for the Q1 of 2009.

It predicts however that, aided by aggressive monetary policy, a weaker pound, low inflation, and the fiscal support announced by many countries, the rate of UK GDP decline will slow through 2009 and make a fragile improvement to reach positive quarter-on-quarter growth of 0.2% in 2010 Q2.

Richard Lambert, director-general of the CBI, says: “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.

“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. The recession is by no means over, but we see a return to very weak growth by spring 2010.”

The CBI predicts that the economy will have shrunk by a total of 5.1% by the end of this recession, which is not as severe as the cumulative 5.9% seen in the early 1980s recession.

The recession is expected to last until the end of 2009, marking six consecutive quarterly falls in GDP.

Sluggish growth will resume in 2010 Q2, picking up slowly over the course of the year, giving an annual average for 2010 as a whole of GDP growth of 0.1%.CPI inflation is expected to fall below the Bank of England’s 2% target in 2009 Q2 and to remain there through 2010.

The Bank of England is expected to start slowly increasing the UK official Bank Rate from its current 0.5% in spring 2010.

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