Unemployment set to hit three million – CBI
UNEMPLOYMENT will reach nearly three million in the next 18 months as a “deeper and longer recession” than was feared hits the economy.
The CBI said recent financial turmoil and “dramatic drop-off” in business conditions over the past two months had darkened the economic outlook for 2009 even further.
The business organisation has revised its economic forecast for next year and believes the recession will now run for most of 2009 and see unemployment peak close to 2.9m.
GDP growth for 2008 has been revised down from 1.1% to 0.8%, and in 2009 the CBI now expects the economy to contract by 1.7%, against its forecast in September of 0.3% growth.
The economy is expected to shrink quarter-on-quarter by 0.8% between October and December this year, and to contract again for a subsequent three quarters before beginning a slow recovery through 2010.
On a more positive note the believes the downturn will ease inflationary pressures, giving the Bank of England scope to cut interest rates to as low as 1.5% in the next six months.
John Cridland, CBI deputy director-general, said: “Since our last forecast was published in September the banking system has come under immense strain, sending consumer and business confidence plummeting in its wake.
“Given the speed and force at which the downturn has hit the economy, we have reassessed and downgraded our expectations for UK economic growth. But the fast-moving and global nature of this crisis means it is impossible to look far ahead with any certainty.
“What is clear is that the short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer lasting. An unwelcome consequence of the downturn will be a significant loss of jobs, many of them in sectors that have been relatively insulated until now.”
In the last week BT, Virgin Media and car dealer Pendragon have all revealed massive job cuts.
The CBI predicts unemployment will reach the two million mark by the end of this year with the jobless rate rising to 6.5%.
The number out of work is currently expected to peak at around 2.9 million (9%) by mid 2010.
Ian McCafferty, CBI chief economic adviser, said: “This latest forecast shows that 2009 is going to be a very tough year for business, with the sharpest fall in GDP since 1991.
“Most worrying are the increasing signs that the credit crunch is now reaching the corporate sector. Since October’s financial turmoil, companies have started to report that, for the first time, they are finding it increasingly difficult to access capital. If this were to be more than a temporary phenomenon, it would result in otherwise healthy companies going to the wall for lack of short term finance. This would have serious implications for both employment and investment.”
