The recession is expected to hit the UK harder than previously expected with negative economic growth for most of 2009 and unemployment set to peak at 2.9 million.
A new report by the Confederation of British Industry (CBI) reveals that the financial turmoil and “dramatic drop-off” in business conditions over the past two months have deteriorated the outlook for next year.
The organisation has revised its economic forecast, and now says the economy will shrink by 1.7% in 2009. Previously, it expected the economy to grow by 0.3%.
The CBI predicts the economy will shrink throughout the first nine months of 2009, before beginning a slow recovery. Inflation is expected to fall to 1.7% by the end of 2009 and 1.1% in 2010. As a consequence, it expects the Bank of England to cut interest rates to around 1.5% in six months time.
John Cridland, deputy director-general of the CBI, says the speed and force at which the downturn has hit the economy have forced it to downgrade its expectations for UK economic growth.
“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,” he adds. “An unwelcome consequence of the downturn will be a significant loss of jobs, many of them in sectors that have been relatively insulated until now.”
Last week, official figures revealed unemployment is rising at its fastest rate since the early 1990s, hitting 1.82 million in September.
The CBI says unemployment will reach the two million mark by the end of 2008, with the jobless rate rising to 6.5%. The number out of work is currently expected to peak at around 2.9 million (9%) by mid-2010.
Meanwhile, unemployment could hit London harder than northern cities, according to a new report by the Local Government Association (LGA).
It claims that the regeneration in recent years of cities such as Manchester and Liverpool means they are better placed to weather the economic storm. This means that out of every five jobs at risk over the next two years, just under two will be in London and the South East.
The report also suggests that the construction and manufacturing sectors will be the hardest hit by the recession.
Margaret Eaton, chairman of the LGA, says: “The recession is going to hit different parts of the country in very different ways and even within individual regions there are marked differences as to how local areas could fare.”