The Government must "urgently" implement its initiatives to repair the financial system and restore the flow of lending to industry in the face of a "deep and prolonged recession", the Confederation of British Industry has warned.
In a stinging rebuke to ministers, the director general of the CBI, Richard Lambert, said that to many of the lobby group's hard-pressed members the Government seems to be "better at making announcements than implementing them" and that many firms "haven't seen anything yet" in the way of help from the state: "It is a time for action... the Government needs to focus on the need to sustain the flow of credit," he said.
Without urgent action and a clear timetable for implementation of credit guarantees and banking support, no amount of fiscal or monetary stimulus will be sufficient to avoid an even more severe downturn, the CBI says. "Ultimately, the severity of this recession will depend on the speedy implementation of the Government's measures to unblock the credit markets and the success of various global stimuli packages in repairing business and consumer confidence," Mr Lambert said. Meanwhile, only a "muted" recovery can be counted on later in 2010.
Launching the CBI's latest set of economic forecasts, the organisation's chief economic adviser, Ian McCafferty, said the UK will be "mired in a deep recession for the whole of 2009... accompanied by a significant rise in unemployment". The jobless total will peak at just over 3 million in a year's time, the CBI said, and the economy will contract by 3.3 per cent in 2009, its worst showing in a single year since the end of the Second World War. Taken as a whole, the recession will see a cumulative loss of output of 4.5 per cent – worse than the downturn in the early 1990s but better than that of the early 1980s. Public sector borrowing will balloon to £168bn in 2010, or 11.8 per cent of GDP, a post-war record.
The recession will last for a total of a year and a half, including the second half of 2008, the employers' group said. The economy will stop contracting in the first quarter of 2010, and return to trend at the end of that year – a markedly more pessimistic medium-term outlook than the Bank of England's or the Treasury's projections.
Particularly hard hit will be manufacturing, investment and consumption. Industrial output will take a hit of 11.5 per cent in the current quarter, with investment down by a similar magnitude as firms adjust plans in the face of de-stocking and restrictions on working capital because of the credit crunch. A survey by Markit reports that 14 per cent of British manufacturing firms have noted deterioration in credit conditions in the past few months, one of the highest in the world. UK consumption, a close proxy for living standards, is forecast to fall by 2.7 per cent next year. The CBI predicts more wage freezes and pay cuts.
Any hope that the depreciation of sterling – which has lost a quarter of its overseas value since the summer of 2007 – will rescue the economy seems likely to be dashed. The CBI reports that "the sizeable contraction in our overseas markets is overwhelming the competitive gain".
The CBI backs the Bank of England's probable move to a policy of "quantitative easing", colloquially known as printing money. As Bank rate falls closer to zero, the CBI argues, "the Bank of England may need to undertake further, unconventional, monetary stimulus measures over the course of 2009 in order to tackle current deflationary forces".
The warnings came as a survey by the Institute of Chartered Accountants in England and Wales showed UK business confidence dropping sharply and companies preparing to slash costs and investment still further.Reuse content