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Downturn Will Be Less Severe Than Cbi Feared

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The recession will be shorter and less severe than previously expected, according to the CBI, which now predicts that 200,000 fewer jobs will be lost.

Britain’s leading business organisation has revised its forecasts for the economy, showing output growing from January next year and unemployment peaking at 3.03 million.

In April it said that it expected no economic growth until next April and predicted that unemployment would soar to 3.25 million.

However, it warned that the recovery would be “slow and gradual†and that it would take time to see whether the emerging “green shoots†would deliver sustainable growth.

“The harshest period of the recession looks to be behind us, the economy is stabilising and this should continue during the second half of this year,†Richard Lambert, DirectorGeneral, of the CBI, said.

The CBI predicts that GDP will fall only marginally in the second half of this year before growing by 0.1 per cent and 0.3 per cent in the first two quarters of 2010.

The CBI said that businesses had ended their cycle of extensive de-stocking, which dragged down GDP between October and March. Businesses are also reporting that while access to credit is still difficult, it is not getting worse, helping to bolster confidence.

By the end of the recession, the economy will have shrunk by 4.8 per cent, the CBI estimates, taking less of a toll than the recession of the 1980s, when it contracted by 5.9 per cent.

Another happy clappy piece to boost us all.

I'm going spending now and will increase my debt levels to boost this country.

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Ian McCafferty, the business lobby group's chief economic adviser, said the Bank's Monetary Policy Committee will continue its programme of quantitative easing for some months before "nudging up" interest rates from its historic low of 0.5pc.

"We will need to see some move back to normality in monetary policy as and when the economy recovers," he said. The comments are likely to fan further expectations around the world that Anglo-Saxon central banks may start to withdraw emergency stimulus faster than expected just weeks ago.

Any signs that either the Bank of England or the US Federal Reserve could be mulling rate rises as soon as this autumn risks triggering an abrupt flight from the bonds markets, pushing interest yields significantly higher. There is a danger that this market reaction could itself kill off any recovery before its gets off the ground.

Professor Tim Congdon, head of the consulting group International Monetary Research, said the world economy is still too fragile to risk monetary tightening.

"It is much too early to talk of rate rises," he said. "We have gone through a ghastly experience over the last nine months and we still need to get this behind us. I am as much in favour of sound money as any but there is no danger of inflation at this point.

And from the Telegraph the CBI also expect rates to rise.

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