CBI: UK faces 'mild recession'

Monday 15th September 2008

The UK will officially be in recession by the end of the year, the CBI predicted today.

The leading business group forecasts the economy to shrink by 0.2 per cent between July and September and by 0.1 per cent in the final three months of the year.

This follows the 0% growth recorded between April and June on official statistics.

Last week the European Commission warned Germany, Spain and the UK would fall in recession by the end of the year.

The official definition of a recession is two consecutive quarters of negative growth.

The CBI now predicts growth in 2009 will be the lowest since 1992.

The cut in the body's prediction was put down to a "sharper-than-expected slowdown over the first half of this year and the impact of weak consumer demand, high energy and commodity prices and the enduring effects of the credit crunch".

However, UK economic growth was expected to stabilise in 2009 – leading to a gradual recovery.

Ian McCafferty, CBI chief economic adviser, said: "We now appear to be in a mild recession which will run to early next year.

"The outlook remains very uncertain, but we do not expect the falls in output to be prolonged, and should start to see signs of a recovery in the second half of 2009."

The CBI also predicts inflation will soon peak at 4.8 per cent, but then fall following the fall in oil prices, so allowing the Bank of England to cut interest rates.

"The Bank of England’s hands have been tied in recent months by the relentless rise in inflation. But with oil prices heading lower, very weak economic activity for a good number of quarters, and little evidence of wage pressure, interest rate cuts will soon be justified, and will provide welcome relief to households and businesses," said Mr McCafferty.

Unemployment in 2009 is expected to reach 2.01 million next year.

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