Government Borrowing to Rise as Recession Lasts throughout 2009; CBI Warns over Worsening State of the Global Economy

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Byline: Kelly Macnamara

THE Government will have to borrow almost pounds 100bn more than previously forecast as it tries to bring a deeper-than-expected UK recession under control, business leaders warned today.

In its latest dire warning on the economy, the CBI business group said the economy will shrink by 3.3% in 2009, compared with its November forecast of a 1.7% contraction.

It also predicted state borrowing would be much higher than Chancellor Alistair Darling forecast in his Pre-Budget Report last year, as the impact of the recession and the fiscal stimulus "take a toll on the public finances".

The CBI said borrowing is expected to reach pounds 149bn in the 2009/10 financial year, or 10% of gross domestic product (GDP), compared with the pounds 118bn announced by Mr Darling.

In the following year the Chancellor said borrowing would reduce to pounds 105bn, but the CBI expects it to rise again, to pounds 168 billion, or 11.8% of GDP.

Ian McCafferty, CBI chief economic adviser, said: "You would have to go back a long way before you found a deficit as high as 10% of GDP.

"In recent years we have seen deficits of around the 3% mark as being strongly sustainable."

But he said many countries had been forced to revise down their projections as the severity of the recession became apparent.

"I think circumstances have changed. The Pre-Budget Report was done in October, November and we have seen a dramatic and global change in conditions, literally in the last six to eight weeks," he said.

"Given the rapid contraction in global economic activity and the continuing credit squeeze, we believe the UK will be mired in a deep recession for the whole of 2009, lasting six quarters in total and accompanied by a significant rise in unemployment."

The CBI revised its joblessness forecast upwards to a peak of just over 3 million in 2010. …