Darling to cut 2009 GDP forecast

Thu 26 Nov, 2009 22:38

By Sumeet Desai

LONDON (Reuters) - Chancellor Alistair Darling will downgrade the 2009 economic outlook when he presents his pre-budget report next month but still point to growth resuming at the turn of the year as he predicted in April.

Treasury sources told Reuters on Thursday that the unexpectedly rapid fall in output in the first quarter of the year meant that the economy would probably shrink by around 4.75 percent, instead of the 3.5 percent decline pencilled in at the time the budget was made.

The British economy has now declined for six successive quarters, marking the longest recession in at least 50 years and lagging behind many other major economies that have already started growing again.

But Treasury sources are cautiously confident that growth will resume around the turn of the year, pointing to recent survey evidence from the Confederation of British Industry and official retail sales data for October.

"The assumption is that the economy grew between 0.2 (percent) and 0.4 percent in Q4," one Treasury source said.

Darling himself appeared to lay the groundwork for a downgrade of the 2009 forecast in his pre-budget report on Dec 9 when he told Parliament earlier on Thursday that his initial forecasts had been in line with most forecasters when it was made.

"Since then, new data has shown that most economies, ours included, suffered a severe shock in the first quarter of this year," he said.

Treasury sources indicated that Darling would likely stick to his forecast for economic growth of 1 percent to 1.5 percent in 2010 as most forecasters were somewhere in the middle of that range, having predicted much lower outturns in April.