last updated: Thursday 20 November 2008, 07:29am

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CBI warns over 'deep recession'

The recession will be 'deeper and longer' than previously thought, the CBI business group has said.

The CBI predicts the recession will run for almost all of 2009, with growth hit by the dramatic falls in confidence and business activity in the wake of the recent financial turmoil.

Its previous survey - carried out before the collapse of Lehman Brothers plunged the global banking sector into deeper turmoil - had looked for 0.3 per cent growth next year, but it now predicts a 1.7 per cent contraction.

John Cridland, CBI deputy director-general, said the speed and force of the downturn had forced it to reassess the coming recession, which they had previously expected to be 'short and shallow'.

He said: 'The recession here in the UK looks to be deeper and longer lasting than we predicted only two months ago.'

The downbeat assessment comes only two days after the British Chambers of Commerce (BCC) warned that unemployment could peak at 3.25 million - more than 10 per cent of the workforce - if Government bids to kick start the economy were inadequate.

The CBI expects jobless figures to peak at around 2.9 million in 2010. It also predicted the Bank of England would lower rates again this year by up to 0.5 per cent to stave off the downturn.

Inflation is forecast to fall to 1.7 per cent by the end of 2009 - below the Bank's 2 per cent target - and hit a further low of 1.1 per cent in 2010.

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