CBI warns of 'slow' economic growth

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The business lobby group said some commentators had been too quick to seize on recent positive indicators as evidence of green shoots in the economy.

CBI director general Richard Lambert said it will take some time before the UK can be sure those shoots have "roots we can depend on" for sustainable growth.

His organisation predicts that GDP, supported by low interest rates, will flatten out during the second half of 2009, followed by modest quarter-on-quarter growth of 0.1% and 0.3% in the first two quarters of 2010.

By the end of the recession, the CBI believes the economy will have shrunk by a cumulative 4.8% - not as severe as the 5.9% seen in the early 1980s.

While the harshest period of the recession looks to be over, Mr Lambert said the UK economy now faced a period of stabilisation.

He added: "The return to growth is likely to be a slow and gradual one; difficult credit conditions are still affecting business behaviour. For positive growth to return, lenders need to feel more confident so that credit can start flowing again."

The CBI said the UK's labour market had been more flexible than hoped, with many more private sector employees accepting wage freezes and short-time working than in previous downturns. This should help limit the pace of job losses through 2009, with the CBI now expecting unemployment to peak at 3.03 million - a rate of 9.6% - in the second quarter of 2010.

Consumer spending will still be constrained by the rise in unemployment and a more elevated savings ratio and only modest increases in incomes.

Recovery hopes have been boosted by estimates from the National Institute of Economic and Social Research suggesting the UK returned to growth in April, as well as signs of life from manufacturing and services firms.