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 ensure that growth in 2010 is fragile, according to the CBI.

In its latest economic forecast, the CBI said that short-term economic prospects are brightening. A recovery is underway in the global economy, which has been boosted by substantial fiscal and monetary stimuli, and the inventory cycle is starting to turn, both at home and abroad, which is helping to lift production. However, the pace of recovery in 2010 is expected to be slow.

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

However, this will dampen spending in early 2010 and although companies may be rebuilding stocks, they are likely to do so very cautiously. As a result, 2010 should start with very weak growth of only 0.1 per cent in Q1, and 0.3 per cent in Q2.

Richard Lambert, CBI director general, 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.

"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."

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

As the global economy picks up and a relatively weak pound makes UK goods more attractive, UK exports should improve into next year to achieve growth of 1.7 per cent in 2010.

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