Recession 'will last until 2010'
The end is in sight but the recession is expected to last until next year, two economic surveys out ahead of the Budget have concluded.
The Ernst & Young Item Club spring forecast predicts GDP to contract by 3.5 per cent in 2009 and expects a recovery next spring, while the Confederation of British Industry (CBI) forecasts a 3.9 per cent decline in economic growth for the year.
The forecasts will put added pressure on the chancellor, who will reveal the government's predictions for the economy as part of the Budget on Wednesday.
Alistair Darling's previous predictions have been criticised for significantly underestimating the shrinking economy.
Richard Lambert, CBI director-general, said: "In these turbulent times it is difficult to build a clear picture of how the economy will perform, but there are a few tentative signs that the steepest phase of the recession is now behind us, and that the banking packages, aggressive monetary policy and fiscal support will steady the pace of decline from here on."
However, the road to recovery will be long and Mr Darling faces a difficult Budget, according to Peter Spencer, chief economic adviser to the Ernst & Young Item Club.
"Alistair Darling has had a good start to the financial year and can face the Commons with a good deal more credit and confidence this Wednesday than he did in November," Mr Spencer said.
"His part-nationalisation of the banks is now looking like a clever move but the chancellor must lay his cards on the table, revise his long-term forecasts down heavily and announce substantial tax increases for the next parliament."
Mr Lambert added: "Budget measures should be targeted on jobs and investment, with a focus on efficiency savings and public service reform."
The CBI predicts a tough time ahead for the UK, with unemployment expected to hit ten per cent in the first quarter of 2010, peaking at 3.25 million unemployed in the second quarter of next year.
Ernst & Young also predicts a housing market and a high street "in the doldrums" for the next 12 months but added the weakness in sterling puts UK exporters in an excellent position for when the world economy picks up in 2010.
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