Page last updated at 00:34 GMT, Monday, 15 September 2008 01:34 UK

CBI latest to warn of recession

Car production line
UK manufacturing output has fallen for five straight months

The CBI has become the latest organisation to predict that the UK will fall into recession this year.

The business group estimates that the economy will shrink by 0.2% between July and September, and then by a further 0.1% from October to December.

Its report follows similar warnings from the European Commission and the British Chambers of Commerce.

An economy is generally considered to be in recession after two successive quarters of declining output.

'Twin impacts'

Although the CBI predicts two quarters of downturn, it adds that it will be a "shallow recession", and not a return to the prolonged economic woes of the early 1990s.

The UK may have entered a mild recession that will hopefully prove short lived
CBI director general Richard Lambert

For 2009, the CBI predicts the UK economy will grow at a "feeble" rate of 0.3% - the worst performance since 1992.

CBI director general Richard Lambert blamed the likely recession on the sharp rise in energy and food costs this year, and the downturn in the housing market, both of which had knocked consumer sentiment.

"Over the past year our forecasts for economic growth have been shaved lower and lower as the UK economy continues to struggle with the twin impact of higher energy and commodity prices and the credit crunch," he said.

"Having experienced a rapid loss of momentum in the economy over the first half of 2008, the UK may have entered a mild recession that will hopefully prove short lived."

'Falling inflation'

The CBI added that while inflation - as measured by the government's preferred consumer price index - should hit a peak of 4.8% this quarter - it expects it to fall back "quite rapidly" over 2009 as energy and other commodity prices decline.

This will give the Bank of England the breathing space to start cutting interest rates, says the CBI, which predicts that rates will fall from the current 5% to 4% by next spring.

"As inflation falls, we should be well placed to move beyond this difficult stage in the business cycle," added Mr Lambert.

The latest official data from the Office for National Statistics (ONS) showed that the UK economy failed to grow between April and June.

The ONS has also said that UK manufacturing output fell in July for a fifth straight month.

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