CBI says worst of British recession over

LONDON (Reuters) - Britain has been through the worst of the recession and will return to modest growth in the second half of 2010, an influential business group said in its latest economic forecast on Monday.

Pedestrians walk past the Bank of England in London April 9, 2009. REUTERS/Stefan Wermuth

The Confederation of British Industry (CBI) said the recession will ease in the second quarter of this year, although it warned that the recovery will be “slow and fragile.”

The economy went into its first recession since the early 1990s in the last three months of 2008, bringing higher unemployment, lower house prices and falling industrial output.

CBI Director-General Richard Lambert said aggressive rate cuts, the weaker pound, low inflation and the global fiscal stimulus would slow the decline in Britain this year.

“There are a few tentative signs that the steepest phase of the recession is now behind us,” he said in a statement. “The recession is by no means over, but we see a return to very weak growth by spring 2010.”

Asked if he agreed with the CBI’s assessment, Business Secretary Peter Mandelson said he did not know whether he could say with certainty that the worst was over.

But he said signs of stabilisation in the housing market, of bank lending moving forward and of recovery in private sector investment were “encouraging news.”

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“It should do more to instil greater confidence amongst people in the economy,” he told the BBC.

The recession deepened more than expected in the first three months of this year, according to the CBI. However, it expects modest 0.2 percent quarter-on-quarter growth in the second quarter of 2010 after the decline slows in 2009.

It predicted that the economy will have shrunk by a total of 5.1 percent by the end of the recession -- less than the cumulative 5.9 percent seen in the downturn during the early 1980s.

Consumer price inflation is expected to fall below the Bank of England’s 2 percent target in the second quarter of this year and to remain there through 2010, the CBI report added.

Unemployment is expected to continue to worsen over the next year, breaking 10 percent in the first quarter of next year and peaking at 3.25 million unemployed the second quarter of 2010.

Lambert urged British finance minister Alistair Darling to use his budget announcement on Wednesday to target help at jobs and investment rather than more fiscal stimulus.

In a message on the YouTube website, Darling expressed confidence the country would bounce back from the “huge downturn,” saying: “We have underlying strengths that we can play to.”

Reporting by Peter Griffiths, Adrian Croft; Editing by Frank Prenesti