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CBI forecast lower unemployment levels 25 March 2010
Steven Jackson (about the author)

Unemployment levels will be lower than expected in 2010 and 2011, according to the latest economic forecast by the Confederation of Business Industry (CBI).

The CBI forecast predicts that unemployment will continue to rise in the near future, but will peak in the autumn of 2010. Economic growth is not expected to return to pre-recession levels until the end of 2011, due in part to the removal of stimulus measures such as the VAT cut and the car scrappage scheme.

The CBI also issued a call to the government to accelerate its response to the growing budget deficit in order to restore confidence among foreign investors.

Richard Lambert, director general of the CBI, said: "The economic outlook is improving, but the lack of a clear driver for growth will make for a bumpy ride in the months ahead.

"To convince international investors that the spiraling budget deficit will not derail the economy, the government must set out a credible plan to balance the books by 2015-16, two years earlier than currently planned."

Household spending to remain static

Lambert also said that the government should target spending cuts and re-engineer public services in order to make savings.

He added: "It is vital that business has the space to grow, invest and create new jobs. That’s the only way out of our current fiscal mess."

The forecast also predicted that household spending would not rise strongly this year due to worry over job losses, weak wage growth and a desire by consumers to increase savings and cut debts.

Ian McCafferty, CBI chief economic adviser, said: "The state of the public finances means this recovery will be led by the UK consumer, private sector investment and the re-building of stocks.

"But headwinds from tight credit conditions and the desire to borrow less and pay down debt will hold this back somewhat."

A small rise in interest rates is expected in the third quarter of 2010, later than previously expected, while CPI inflation is predicted to drop below the Bank of England’s target of two per cent by the end of 2010, and business investment is expected to fall in 2010 but recover in 2011.

Despite the state of the public finances, the CBI predicts annual UK growth of 1.0 per cent for 2010, followed by 2.5 per cent in 2011. The prediction for net borrowing for 2009-10 has been revised down to £168bn, 12 per cent of GDP.

Source: Credit Today