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Thursday 12th of February 2009
November 17, 2008

CBI: Recession will be ‘tougher and longer’

by Kay Murchie

According to the Confederation of British Industry (CBI), the UK’s recession will be tougher and longer than previously estimated.

The business group is forecasting that the economy will contract by 1.7% next year, revised from an earlier estimate of 0.3%. The forecast of 0.3% was predicted prior to the collapse of US investment bank, Lehman Brothers, in September.

John Cridland, CBI’s deputy director-general, said since our last forecast was published in September the banking system has come under immense strain, sending consumer and business confidence plummeting in its wake.

Given the speed and force at which the downturn has hit the economy, we have reassessed and downgraded our expectations for UK economic growth, added Mr Cridland.

However, the fast-moving and global nature of this crisis means it is impossible to look far ahead with any certainty. What is clear is that the short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer lasting, explained Mr Cridland.

The CBI expects the economy to contract quarter-on-quarter by 0.8% between October and December this year, and to shrink again for the next 3 quarters before starting a slow recovery throughout 2010.

In the meantime, the CBI is forecasting that interest rates could fall as low as 1.5% as the Bank of England takes steps to boost the economy.

Earlier this month, the Bank slashed rates from 4.5% to 3% following a 0.5% cut in October.

According to the CBI, inflation is expected to fall from 4.2% to 1.7% by the end of 2008, below the Bank’s target of 2% and this will pave the way for further interest rate cuts, say the group.

The UK economy shrank between July and September, which was the first time since 1992, which confirms that the UK is close recession.

A country is considered to be in recession when it experiences two consecutive quarters of negative growth.

Finally, the CBI is forecasting that unemployment will rise to nearly 3 million next year, from 1.8 million currently. The CBI said that unemployment will reach 2 million before the end of 2008.

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