By Claire Racine

While the UK economy is stabilising, with the worst of the quarterly falls in GDP behind us, it will take until the beginning of next year before we see a return to growth, said the CBI, the business lobby organisation.

“Some commentators have been carried away by recent tentative indicators as evidence of ‘green shoots’,” said Richard Lambert, CBI director-general.

“It will take some time before we can be sure these shoots have roots we can depend on for sustainable growth and, in the meantime, the government must do everything it can to help firms get access to credit.”

The CBI predicted that UK GDP, supported by low interest rates and quantitative easing, should flatten out during the second half of 2009 with quarter-on-quarter figures of -0.1% and 0% in quarters 3 and 4 respectively. According to the CBI report, starting in 2010, there will be slight economic growth that will pick up slowly.

A report from the National Institute of Economic and Social Research agreed with the CBI report saying that the economy will shrink by 4.3% this year, and then experience a weak recovery, with GDP rising by 0.9% in 2010.

The CBI expects that, by the end of the recession, the economy will have shrunk by a cumulative 4.8% - less severe than the 5.9% seen in the early 1980s.

Consumer Price Index (CPI) inflation is expected to fall below the Bank of England’s target of 2% in the third quarter of 2009 and remain there to the end of 2010. Even though quantitative easing is expected to continue, the CBI expects the Bank to return monetary policy gradually to a more normal footing.

Despite what the Chancellor set out in the budget, nominal GDP will rise less than he expects as both real growth and inflation turn out to be lower, according to the NIESR report. In fact, revenues will also be smaller than what the Treasury is projecting.

Liberal Democrat shadow chancellor, Vince Cable, has no doubt that the measures taken on interest rates, credit expansion, bank rescues and the big devaluation of the pound have helped to stop the economy collapsing; however, he said that the CBI report is a warning that ministers are being premature in saying that the economy is in recovery.

“The bankers’ enthusiasm for returning to business as usual is getting in the way of a sober assessment of the very difficult situation that still exists in credit markets,” Cable said. Furthermore, he added that “it would be foolish to talk about a recovery in the traditional sense because the banks are still not working properly.”

Ian McCafferty, CBI chief economic adviser, agreed that the UK economy has a long way to go before it is “truly out of the woods and we see sustainable growth.”

“For consumers, some of the worst fears of earlier in the year may now not be realised, but they will still face tough times as higher saving and lower income eat in to their ability to spend,” McCafferty said.

“However, the restraint shown by businesses and their staff in setting pay awards and accepting short-time working should help to curb the pace of job losses, lessening the pain for some, and shows the real strength of Britain's flexible labour market."