Britain will pull out of recession earlier than previously forecast but a sustained recovery is not assured, the Confederation of British Industry said today.
The business group predicted the economy would stabilise in the fourth quarter of this year but said it would take until the beginning of next year to return to growth.
“With the process of stabilisation in the economy gaining traction over the months ahead, it is likely that we will see an end to recession before the year is out, a little sooner than predicted in our April forecast,” the CBI said.
“However, the massive negative shock that we had from the credit crunch will take time to dissipate.”
Data last week showed British industrial output rose for the first time in over a year in April and the National Institute of Economic and Social Research estimated that Britain's economy returned to growth in April, expanding by roughly 0.2 per cent over the month and another 0.1 per cent in May.
The CBI joins a chorus of policymakers who have recognised the improvement in recent economic indicators but who have cautioned the recovery could be both slow and fragile.
British finance minister Alistair Darling said last week rising oil prices and a failure by other European countries to clean up their banks meant there were still clouds on the horizon.
Bank of England policymakers have taken a similar line, suggesting little rush to raise interest rates from record lows.
“We still have some way to go before the UK economy is truly out of the woods and we see sustainable growth,” said Ian McCafferty, CBI chief economic adviser.
“For consumers, some of the worst fears of earlier in the year may now not be realised, but they will still face tough times as higher saving and lower income eat in to their ability to spend.”
The CBI forecasts the economy will contract by 0.1 per cent in the third quarter of this year, turn flat in the fourth quarter and record growth of 0.1 per cent and 0.3 per cent respectively in the first two quarters of 2010.
It calculates the economy will have shrunk by a cumulative 4.8 per cent by the end of the recession, less severe than the 5.9 per cent contraction seen in the early 1980s.