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Economy 'to slow further in 2009'

02/07/2008

Economics consultancy CEBR has downgraded its growth forecast for the UK economy to 1.3 per cent in 2009.

The Centre for Economics and Business Research said it is revising down its prediction and forecasts two years of weak growth for the economy, expanding by 1.7 per cent in 2008 and just 1.3 per cent in 2009.

Economists from the group revised their prediction for 2009 as the economic downturn looks set to be prolonged due to the rise in inflation, squeezing real disposable income and preventing much needed Bank of England rate cuts.

This year will see the slowest growth since 2005, while 2009 will be even weaker - with growth at its lowest since 1992, the group said.

CEBR economist Charles Davis said: "We expect the continued housing market weakness to restrain consumer expenditure and rising inflation to squeeze disposable incomes.

"The economy is likely to pick up towards the end of 2009 as the Bank cuts rates, with a return towards trend in 2010."

Managing director Mark Pragnell added: "The era of easy credit has come to an end - 2009 will see consumer expenditure below the levels seen in recent years and a rise in the savings ratio as households are more cautious."

The group predicted the Bank of England will keep the base rate at five per cent for the rest of the year.

CEBR also predicted employment will fall in 2009 for the first time since 1993.

However, the group added that although the comparisons with the early 1990s are "striking", the fundamentals remain more solid.

The Organisation for Economic Co-operation and Development has warned that growth will slow to 1.8 per cent this year and has urged the Bank of England to leave its interest rate on hold for the moment.