Employers' group sees 'tentative signs' of upturn
Past three months were 'tougher than expected'
The worst may be over for Britain's "deeply troubled" economy, after a weaker-than-expected start to 2009, the CBI predicts today, as the chancellor puts the finishing touches to Wednesday's budget.
After a relentless flow of bad news in the first three months of the year, the employers' group has cut its growth forecast for 2009, warning that the economy will shrink by 3.9%, instead of the 3.3% contraction it expected in February. That is more than twice the pace of decline pencilled in by Alistair Darling at November's pre-budget report.
"The UK economy remains deeply troubled, and the first quarter of this year has been tougher than expected. Anxious consumers are spending less and building a savings buffer," said Richard Lambert, the CBI's director general.
Despite this, the CBI expects the economy to bounce back by next spring, chalking up positive growth of 0.2% in the second quarter of 2010.
"In these turbulent times it is difficult to build a clear picture of how the economy will perform, but there are a few tentative signs that the steepest phase of the recession is now behind us, and that the banking packages, aggressive monetary policy and fiscal support will steady the pace of decline from here on," Lambert said.
Vince Cable, the Liberal Democrat Treasury spokesman, said that in spite of the CBI's guarded optimism, Darling must confront the dire state of the economy head-on.
"We are undoubtedly in the middle of a major economic crisis, compounded by the reluctance of banks to lend. No amount of spinning by government can avoid these simple, brutal economic facts, which the budget has to address," he said. "All we can sensibly discuss is what is actually happening. That is unemployment growing rapidly, more and more families struggling to pay their mortgages, the growth of negative equity and an unrelenting budget deficit."
However, another chink of light comes today in a new housing survey from Rightmove, the property website, which shows a 1.8% increase in asking prices over the past month, to an average of £222,077 from £218,081 in March - the strongest increase for more than a year.
Greater London was the only part of the country where asking prices fell in April, dropping by 3.2%, but there was some evidence that properties were starting to sell faster in the capital. "Time-on-market in London has fallen from 86 to 80 days, indicating that properties are starting to sell more quickly," Rightmove said.
But its commercial director, Miles Shipside, said a shortage of lending was still holding back the market: "It looks like we are now bumping along the bottom of the trough, but for there to be any real sense of optimism that we're on a sustainable road to recovery, the availability of mortgage finance needs to improve significantly." He added: "Thankfully mortgage lenders are starting to release more funds to finance new house purchases."
But Ian McCafferty, the CBI's chief economic adviser, rejected the idea that the housing market was about to recover, saying that any recent bounces were normal for spring, and prices had at least another 7% to fall. Average prices are already down by about 20% from their 2007 peak.
The CBI predicts that by the end of the recession, the economy will have shrunk by a total of 5.1%, which would make it less severe than the 5.9% drop seen in the early 1980s.
The business group has urged the government against implementing major new spending plans in Wednesday's budget, saying any measures introduced should be aimed at creating jobs and investment. It believes unemployment will rise from its current level of 2 million over the next 12 months, peaking at 3.25 million in the second quarter of 2010.
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