LONDON—The worsening financial crisis and weakening of business conditions over the past two months have led the Confederation of British Industries (CBI ) to revise its economic forecast and predict Britain will enter a deeper and longer recession than first forecasted.
The CBI is the U.K.’s leading business organization, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. The organization is also the UK’s official business representative in the European Union, which generates more than 50 percent of business regulations affecting British firms.
The CBI now predicts that Britain’s recession, which started in the third quarter of 2008, is now expected to last through 2009. The firm forecasts that up to 2.9 million people could be unemployed.
The economy is expected to contract by 1.7 percent, compared to a 0.3 percent of growth originally projected in September. Growth is expected to slowly recover in 2010.
The drop in inflationary pressure will give further room to the Bank of England, U.K.’s central bank, to make a series of interest rate cuts over the next six months to bring the bank rate to possibly as low as 1.5 percent.
“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,” said John Cridland, CBI’s deputy director-general.
“Given the speed and force at which the downturn has hit the economy, we have reassessed and downgraded our expectations for U.K. economic growth,” he continued. “But the fast-moving and global nature of this crisis means it is impossible to look far ahead with any certainty.”
U.K.’s announcement parallels recessionary fears across the world. The United States’ economy may be facing a similar downturn.
“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.”
Unemployment is expected to reach the two million mark by the end of 2008, with the jobless rate rising to 6.5 percent. The number of people out of work is currently expected to peak at around 2.9 million (9 percent) by mid-2010.
Lack of confidence among consumers will dampen household spending and the CBI predicts that household consumption will also contract next year.
Investment forecasts have also been downgraded due to falling confidence in businesses. The CBI predicts that fixed investment would shrink by 3.8 percent in 2008 and 10.5 percent in 2009.
Public borrowing is expected to increase sharply during the recession. Net borrowing for 2008-2009 is expected to hit between £69.9 billion and £93.8 billion in 2009 and 2010, respectively.
Ian McCafferty, CBI’s Chief Economic Adviser, said, “This latest forecast shows that 2009 is going to be a very tough year for business, with the sharpest fall in GDP since 1991.”
“Most worrying are the increasing signs that the credit crunch is now reaching the corporate sector,” McCafferty said. “Since October’s financial turmoil, companies have started to report that, for the first time, they are finding it increasingly difficult to access capital.”
“If this were to be more than a temporary phenomenon, it would result in otherwise healthy companies going to the wall for lack of short term finance. This would have serious implications for both employment and investment.”
The CBI is the U.K.’s leading business organization, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. The organization is also the UK’s official business representative in the European Union, which generates more than 50 percent of business regulations affecting British firms.
The CBI now predicts that Britain’s recession, which started in the third quarter of 2008, is now expected to last through 2009. The firm forecasts that up to 2.9 million people could be unemployed.
The economy is expected to contract by 1.7 percent, compared to a 0.3 percent of growth originally projected in September. Growth is expected to slowly recover in 2010.
The drop in inflationary pressure will give further room to the Bank of England, U.K.’s central bank, to make a series of interest rate cuts over the next six months to bring the bank rate to possibly as low as 1.5 percent.
“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,” said John Cridland, CBI’s deputy director-general.
“Given the speed and force at which the downturn has hit the economy, we have reassessed and downgraded our expectations for U.K. economic growth,” he continued. “But the fast-moving and global nature of this crisis means it is impossible to look far ahead with any certainty.”
U.K.’s announcement parallels recessionary fears across the world. The United States’ economy may be facing a similar downturn.
“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.”
Unemployment is expected to reach the two million mark by the end of 2008, with the jobless rate rising to 6.5 percent. The number of people out of work is currently expected to peak at around 2.9 million (9 percent) by mid-2010.
Lack of confidence among consumers will dampen household spending and the CBI predicts that household consumption will also contract next year.
Investment forecasts have also been downgraded due to falling confidence in businesses. The CBI predicts that fixed investment would shrink by 3.8 percent in 2008 and 10.5 percent in 2009.
Public borrowing is expected to increase sharply during the recession. Net borrowing for 2008-2009 is expected to hit between £69.9 billion and £93.8 billion in 2009 and 2010, respectively.
Ian McCafferty, CBI’s Chief Economic Adviser, said, “This latest forecast shows that 2009 is going to be a very tough year for business, with the sharpest fall in GDP since 1991.”
“Most worrying are the increasing signs that the credit crunch is now reaching the corporate sector,” McCafferty said. “Since October’s financial turmoil, companies have started to report that, for the first time, they are finding it increasingly difficult to access capital.”
“If this were to be more than a temporary phenomenon, it would result in otherwise healthy companies going to the wall for lack of short term finance. This would have serious implications for both employment and investment.”
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