UK economy will return to growth by spring 2010

by Scott Bicheno on 20 April 2009, 09:38

Tags: HM Treasury

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End of the beginning?

Both the CBI (Confederation of British Industries) and the Ernst and Young ITEM club have forecasted a weak recovery for the UK economy in 2010, but confirm it will shrink significantly this year.

The CBI said the economy performed even worse than expected in the first quarter of this year, shrinking by 1.8 percent. This has led is to revise its growth forecast for the whole year from -3.3 to -3.9 percent. However, it sees a return to quarter on quarter growth by Q2 2010, but this will only be 0.2 percent.

Meanwhile the Ernst and Young ITEM (Independent Treasury Economic Model) club, which uses the same economic model as the government for its UK forecasts, sees the UK shrinking by 3.5 percent this year and 0.1 percent in 2010.

The fact that the ITEM club uses similar techniques to the government theoretically means it is in a good position to assess the accuracy of government forecasts. Chancellor of the Exchequer Alistair Darling predicted the UK economy would shrink by between 0.75 and 1.25 percent in his pre-budget report last November. He's expected to adjust that to a decline of three percent when he announces his budget this Wednesday.