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The Confederation of British Industry this week published its revised economic outlook for 2009. Following developments over the past two months that have seen more and more companies becoming increasingly financially restrained, the lobbying organisation now predicts the recession will be longer and deeper than first expected. The CBI forecasts the recession will now run for most of 2009 and will see unemployment figures rise to nearly 2.9 million by the middle of 2010.
The CBI has made clear its new outlook on the economy by revising its 2008 and 2009 growth predictions. GDP growth for 2008 has been downgraded to 0.8% from 1.1%. It is now expected the economy will contract by 1.7% as opposed to growing by 0.3% as per the business group’s September forecast. The organisation is now predicting a slow recovery will commence nearer to 2010.
Other forecasts include inflation falling back further to a low of 1.1% in the coming year, averaging 1.2% for 2009. The CBI subsequently expects the Bank of England to take advantage of the lessening of inflationary pressure by making further rate cuts over the course of the next 6 months, with the aim of bringing the Bank rate to potentially as low as 1.5%. It is also thought household consumption will contract by 1.8% due to a growing lack of consumer confidence and spending.
U.K. borrowing this year is amongst the highest in the developed world but the CBI, which speaks on behalf of some 240,000 businesses, estimates it will increase even more during the recession. The projected figure for net borrowing in 2008/9 is £69.9bn and is expected to rise even further in 2009/10, to £93.8bn.
Speaking on BBC News, CBI Chief Economic Advisor Ian McCafferty said, “we’ve seen a new phase, I think, in the Credit Crunch where for the first time companies are also finding themselves restrained in terms of capital.”
Consequentially, unemployment is expected to peak at an even higher figure than previously thought.
Although some might accuse the CBI of melodrama, it is worth noting the European Commission, in the light of the £ Sterling falling further than any other major currency, expects Britain to face a deeper recession than practically any other nation in the European Union. This links in with several political and economic commentators being of the opinion that other countries will possibly recover faster than the U.K. despite Gordon Brown’s claim Britain is better equipped to deal with the crisis at hand than its neighbours. In terms of unemployment figures, the British Chambers of Commerce is actually more pessimistic than the CBI, this week predicting that as many 3.25 million could be jobless if Government measures fail to revive the economy.
In the context of present circumstances, the CBI believes a blanket national strategy will not resolve the problem and is instead advocating the channelling of resources at local level. Representatives of the CBI membership are due to meet the Prime Minister this week in order to discuss these views and other measures that could be taken to assist businesses through the downturn.
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