Recession end fragile says CBI

Modest increases in GDP (gross domestic product) are set to return to the UK economy with 0.3% and 0.4% growth predicted in Q3 and Q4 2009 respectively, according to the CBI’s latest economic forecast released today.

The end of the recession is nigh, but the CBI warns that consumer and business demand is likely to remain stifled, making recovery in 2010 somewhat tentative.

The reintroduction of a 17.5% VAT rate in January 2010 will prompt consumers to rush out and buy ahead of the Christmas holiday period, but will see growth fall back in Q1 and Q2 to little more than 0.1%, says the lobby group for British business.

CBI director general, Richard Lambert, said:

The outlook is improving as the UK draws strength from quantitative easing, a weak pound and a recovering global economy. Although growth this quarter should mark the end of the recession, conditions in the UK will remain tough for some time yet, and it is difficult to see where demand growth will come from.

Business investment has seen its greatest fall in 40 years during 2009 and economists predict the situation will only gradually improve during 2010.

Add to this a ‘debt correction’ among consumers who are unlikely to want to splash the cash in the way they did when credit was easy, and you have a recipe for a very different economic landscape over the next few years.

This kind of economic adjustment was inevitable. Most businesses will already be planning for more subdued demand.

[Picture credit: DavetheGrey licenced from Flickr]