The Confederation of British Industry has delivered another damning verdict on the health of the UK economy: after the market turmoil of October, it’s now predicting a 1.7% contraction in 2009, rather than 0.3% growth it was forecasting in September. The unfortunate by-product is likely to be a huge rise in unemployment – the CBI reckons that the current figure of 1.8m could shoot up to 2.9m in the next year or so. It also suggested today that the constant flow of bad news is damaging confidence. News like this, perhaps?
This latest downgrade marks a dramatic about-turn for the CBI: two months ago, it was expecting a fairly shallow recession, even suggesting that the economy would grow slightly during 2009 (albeit by a measly 0.3%). However, the ‘speed and force at which the downturn has hit the economy’ has caused it to change its tune, and it’s now reverting to its more traditional doom-and-gloom viewpoint: ‘The short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer lasting,’ said CBI deputy director-general John Cridland.
Cridland said the financial turmoil in October had had a ‘severe impact on confidence and business activity’. ‘The impact of relentless bad news every day on the news has caused people to stop spending’, he told the BBC today, thus ironically compounding the problem. The CBI is now predicting that investment and household spending will both shrink, while unemployment and borrowing will soar – meaning that any recovery is unlikely before 2010.
The only slight upside is that the slowing economy should bring inflation down to around 1.7%, below the Bank of England’s 2% target, which at least means that interest rates can be cut again (possibly right down to 1.5%) in a bid to boost spending. On the other hand, Cridland also admitted that none of the CBI’s predictions were set in stone: ‘The fast-moving and global nature of this crisis means it is impossible to look far ahead with any certainty,’ he demurred. So perhaps not much consolation after all…
And there was also bad news for those of you living in the capital today: a new report from the Local Government Association suggested that 40% of the jobs under threat in the next two years will be in London and the South-East. The LGA has identified the industries that are likely to come off best and worst, and then used this to estimate how well each region will do – and it thinks that the Northern cities should weather the storm a little better. And guess how it thinks we should respond to this looming threat? That’s right, devolving more power to local government. Fancy that...
In today's bulletin:
Unemployment to hit 2.9m, says CBI
Iceland coughs up our savings
MT's Little Ray of Sunshine: ASOS still in vogue
UK CEOs still the poor (ish) relations
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