Darling Budget boost as economists see green shoots

As pressure mounts on the Chancellor ahead of Wednesday's Budget, two business groups predict a 2010 recovery.

Last Updated: 31 Aug 2010

The UK economy is over the worst and should start to recover in early 2010, according to two influential business lobbying groups. The Confederation of British Industry and the Ernst & Young ITEM Club both said today that they expect growth to return in the second quarter next year, after another 12 months of recession. As Chancellor Alistair Darling prepares to deliver his Budget on Wednesday against a backdrop of falling growth and swelling deficits, with MPs on all sides cranking up the heat, this is just the kind of prediction he needs to hear. Although this putative recovery might come too late to salvage his job prospects...

Darling has an unenviable task this Wednesday. On the one hand he has to try and inject some optimism into the economy, as Labour MPs (no doubt also fearing imminent unemployment) have been stressing in the last few days. However, he doesn’t exactly have much to shout about. He may have to admit that the budget deficit will stretch to £190bn by 2011 as public borrowing soars, according to economists – substantially higher than his Pre-Budget Report forecasts, and probably necessitating some fairly painful spending cuts (or some extremely unpopular tax hikes).

Darling also suggested last year that the UK economy would shrink by between 0.75% and 1.25% this year, but this now looks wildly over-optimistic - the CBI, for example, is now predicting a 3.9% contraction. The ITEM Club is marginally more hopeful (it’s expecting a 3.5% drop), but it’s still predicting ‘another 12-18 months of serious grief', during which around 900,000 jobs will be lost. That’s unlikely to be a big vote-winner.

However, the good news (such as it is) is that both ITEM and the CBI are expecting things to pick up by next spring, thanks to the combined effects of the various monetary and financial stimulus plans (from banking bailouts to quantitative easing), the weaker pound (which should help exporters) and low inflation. Both bodies think we’re now starting to see a few of those much-vaunted green shoots of recovery (which just goes to show: if you keep predicting them, you’re going to be right eventually) – although it ‘could yet be another false dawn’ (ITEM) and any recovery will be at best ‘slow and fragile’ (the CBI).

The Chancellor has been getting down with the kids this weekend by delivering a pre-Budget YouTube message, in which he tried to sound upbeat about our chances of bouncing back from this ‘huge downturn’ by playing to our ‘underlying strengths’. But he faces an uphill task trying to persuade the rest of us of this on Wednesday - and with an election due next year, even a spring recovery might be too little too late...

In today's bulletin:

Darling Budget boost as economists see green shoots
St Albans clobbered by the taxman
Brown mulls £1bn tech Nesta egg
Using your loaf to woo customers
Foundation looks to boost skills of charity bosses

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