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CBI retracts its forecast and predicts a 2.5% slump in 2009

1 Dec 08

Britain is set to enter a recession as severe as that of 1991, employers predict. They say the economy will shrink by 2.5 per cent from its peak, reaching a trough late next year

In a sharply revised forecast, the CBI predicts that unemployment will hit 9 per cent by 2010, leaving nearly 3million people out of work. Next year the economy is expected to contract by 1.7 per cent – in September, the CBI forecast growth of 0.3 per cent and a short, shallow recession.

The CBI took the unusual step of revising its forecast two months after its previous outlook.

Ian McCafferty, its chief economic adviser, said the financial crisis that emerged a few days after its September forecast with the collapse of Lehman Bros dramatically changed the picture.

“The first thing that has changed is business confidence,” Mr McCafferty said, with “significant fears” among businesses that they would be unable to raise cash on affordable terms, if at all.

“Companies have started to report that, for the first time, they are finding it increasingly difficult to access capital.” McCafferty said. “If this were to be more than temporary, it would result in otherwise healthy companies going to the wall for lack of short-term finance. This would have serious implications for employment and investment.”

McCafferty said the new CBI forecast assumed that the measures the government had taken to shore up the nation’s banking system were effective. If not, the economic outlook “would have to be revised to the downside”.

John Cridland, the deputy director-general said the CBI expected the Bank of England to cut rates further, perhaps by half a percentage point in December.

McCafferty signalled that the CBI broadly supported government stimulus for the economy, though he said fiscal loosening should be “targeted and temporary”, and should be accompanied by “new fiscal rules that give international investors confidence”.

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CBI | Richard Lambert | economy

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