The UK economy is expected to emerge from recession through modest growth in the third and fourth quarters of this year, but constraints on demand will mean that growth in 2010 is fragile, according the CBI.

The CBI said a recovery is underway in the global economy, boosted by substantial fiscal stimulus, plus production is starting to lift. However, it said the pace of recovery in 2010 is expected to slow.

The CBI predicted that UK GDP will post quarter-on-quarter growth of 0.3% in Q3 of 2009, edging up to 0.4% in Q4 as consumers bring spending forward in advance of the VAT increase in January.

However, it said spend will dampen in early 2010 and as a result, next year will start with weak growth of only 0.1% in Q1 and 0.3% in Q2.

CBI director-general Richard Lambert said: “The outlook is improving as the UK draws strength from quantitative easing, a weak pound and a recovering global economy. Although growth this quarter should mark the end of the recession, conditions in the UK will remain tough for some time yet, and it is difficult to see where demand growth will come from. 

“Firms that have run down their stocks will now be starting to raise output to meet demand, and consumers are likely to bring forward spending before VAT rises. But once these two boosts are out of the way there is no clear driver of robust economic growth into 2010.”

After five consecutive quarters of contraction, UK GDP has fallen by a cumulative 5.5%, which is close in magnitude to the cumulative 5.9% seen in the early 1980s. The CBI forecasts that GDP will shrink by 4.3% in 2009 and grow by 0.9% in 2010.

Lambert said: “Growth next year will remain very weak, while job losses will continue and household consumption will stay tightly squeezed. The sharp fall in business investment this year is a real concern, as are the public finances, and both will affect UK economic prospects in the years to come.”

The CBI said unemployment is expected to continue to rise, but at a slower pace. It expects it to peak at around three million in Q2 of 2010.

Household spending is expected to stay under pressure, with consumption forecast to fall by 3.2% in 2009 and by 0.2% in 2010, although on a quarterly basis it should grow slowly in the second half of that year.

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