CBI signals economic recovery

The bosses' group the CBI has revised upwards its forecasts and now believes that the recession will come to an end before it previously expected. As recently as April it talked of a gradual recovery with any improvement dependent on fragile green shoots.
However it now says the economy’s rate of contraction will slow over the summer months before stabilising in the fourth quarter.

In the new year it is now forecasting a return to growth, with GDP expanding 0.4 per cent in the first half and unemployment peaking at just over three million, rather than at its previous 3.25m estimate.

Richard Lambert, the CBI's director general said: "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."

As a result of the improvement in the economy the CBI expects the Bank of England to begin raising interest rates at the end this year, a lot sooner than most analysts were forecasting.

However there are worries that if interest rates start to rise too soon, they will risk choking off any meaningful recovery before it has begun. And the CBI itself cautioned against getting too carried away by the more positive signs, putting the emphasis on a steady and gradual recovery.

The Government itself is notably more optimistic, talking of a recovery taking place during the course of 2009.

WHAT THEY ARE SAYING
Professor Tim Congdon, head of consulting group International Monetary Research, the Daily Telegraph: "It is much too early to talk of rate rises. We have gone through a ghastly experience over the last nine months and we still need to get this behind us. I am as much in favour of sound money as any but there is no danger of inflation at this point. The data coming from the eurozone is dreadful and M2 money supply growth in the US is slowing again. It is very premature to celebrate."

Vince Cable, Liberal Democrat economy spokesman, the Guardian: "I have no doubt that the drastic measures taken on interest rates, credit expansion, bank rescues and the big devaluation of the pound have all helped to stop the economy collapsing. But it would be foolish to talk about a recovery in the traditional sense because the banks are still not working properly. There are also new threats ahead, potentially including inflation because of rising oil prices."