UK economic recovery unlikely before 2010

The UK economy may be stabilising, but according to industry body the CBI it will not show real signs of recovery until next year.

The organisation said the worst of the quarterly falls in GDP were out of the way, but a return to growth was still some months off.

The CBI said it expected "modest growth" to resume during the first three months of 2010, with the pace of growth gradually picking up during next year.

Richard Lambert, CBI director-general said: "The world recession has deepened, so it is not surprising that the UK economy has continued to suffer. However, the harshest period of the recession looks to be behind us, the economy is stabilising and this should continue during the second half of this year.

"The return to growth is likely to be a slow and gradual one; difficult credit conditions are still affecting business behaviour. For positive growth to return, lenders need to feel more confident so that credit can start flowing again.

"Some commentators have been carried away by recent tentative indicators as evidence of 'green shoots'. It will take some time before we can be sure these shoots have roots we can depend on for sustainable growth and, in the meantime, the government must do everything it can to help firms get access to credit."

The CBI believed that "very modest increases" in interest rates were likely in the coming months, up from current levels of 0.5 per cent, Lambert added.

Unemployment was still expected to continue to rise until the mid-point of 2010 to a peak of 3.03 million - nearly 10 per cent of the working population - before edging lower during the remainder of 2010.

Ian McCafferty, the CBI's chief economic adviser, said the UK economy had a way to go before it was "truly out of the woods and we see sustainable growth. For consumers, some of the worst fears of earlier in the year may now not be realised, but they will still face tough times as higher saving and lower income eat in to their ability to spend".

"However, the restraint shown by businesses and their staff in setting pay awards and accepting short-time working should help to curb the pace of job losses, lessening the pain for some," he added.