THE CBI will today say that economic Armageddon has been averted and that growth is on the cards, although it will warn over the perilous state of the government’s finances.
Speaking at today’s CBI economic forecast, director-general Richard Lambert will say that the risk of a 1930s-style recession in the UK has now faded.
The employers’ organisation will also raise its quarter-on-quarter growth forecast for the third quarter to 0.3 per cent, up from the 0.1 per cent rise it predicted in June.
This will be followed by a 0.4 per cent rise in the final quarter, compared to the flat growth the CBI predicted in June.
“Armageddon has receded a little bit over the horizon,” Lambert will say, adding that global fiscal and monetary stimulus programmes have saved the economy from meltdown.
But he will warn that businesses are still very concerned about the government finances, which have spiralled out of control.
Government debt is expected to balloon to £176.2bn by the end of the fiscal year, according to the CBI, representing 12.6 per cent of the UK’s gross domestic product.
And Lambert will warn that the government will have to cut spending to balance the books, or risk lumbering businesses with extra taxes which could hamper a recovery.
“The government will need to come up very quickly with a credible plan for bringing the public finances back to health,” he will say.
The “very damaged” credit market will continue to weigh on the recovery, Lambert will add.
And much of the growth the CBI expects this year comes as consumers bring forward spending before VAT – the tax added to the prices of goods and services – rises back to 17.5 per cent at the end of the year.
The end of the 15 per cent VAT rate, brought in by chancellor Alistair Darling to boost spending, will lead to growth dropping to just 0.1 per cent in the first quarter of 2010 and 0.3 per cent in the second quarter, according to the CBI
The CBIwill add that it expects unemployment to rise to 3m next year.