Monday, the Confederation of British Industry forecast a slow and fragile recovery in the UK with growth resuming only in the spring of 2010. The CBI said in a report that the recession deepened more than expected in the first quarter of this year, but it is forecast to moderate in the second half of the year.

The CBI revised down its GDP forecast for 2009 to a 3.9% contraction compared to an earlier estimate of a 3.3% GDP decline, reflecting a harsher sequential decline of 1.8% in the first quarter of 2009.

Further, the CBI predicts 0.2% sequential growth in the second quarter of 2010 which would be aided by aggressive monetary policy, a weaker pound, low inflation and the fiscal support measures announced by many nations.

The business lobby thus forecast a total 5.1% contraction by the end of this recession. However, it is not as severe as the cumulative 5.9% decline seen in the earlier 1980s recession.

Further, CPI inflation is predicted to stay below the central bank target of 2% in the second quarter of 2009 and to remain there through 2010. By spring 2010, the central bank is set to start raising the official Bank Rate but the monetary stance will remain easy throughout the forecast period, the CBI said.

Meanwhile, unemployment is forecast to continue to worsen over the coming year, crossing 10% in the first quarter of 2010 and peaking at 3.25 million unemployed in the second quarter of 2010.

As households are concerned about the economy and jobs, they lifted savings ratio to a two-year high in the fourth quarter of 2008. The CBI expects a broadly similar rate of savings to be sustained throughout 2009 and 2010. Household spending is predicted to fall 3.4% this year and 0.4% in 2010. Low inflation and job concerns would keep average earnings growth weak throughout 2009.

According to the business lobby, public finances would remain under considerable pressure and net borrowing in 2009/10 is expected to reach GBP 157 billion and GBP 172 billion in 2010/11, which would represent 11.2% and 11.9% of GDP respectively.

Richard Lambert, CBI Director-General said, Given falling tax revenues, the shrinking economy, and alarming levels of government debt, we urge the Chancellor to avoid any further major fiscal boosts in the Budget. Budget measures should be targeted on jobs and investment, with a focus on efficiency savings and public service reform.

For comments and feedback: contact