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UK economy shrinking quickly

THE United Kingdom's economy will shrink at almost twice the pace previously forecast this year as the credit famine plunges the nation deeper into the worst recession in almost 30 years, the UK's biggest business lobby group said yesterday.

Gross domestic product will contract 3.3 percent, instead of the 1.7 percent predicted in November, the Confederation of British Industry said yesterday. By the end of this year, the economy will have contracted for six consecutive quarters, it said.

"The world has changed dramatically," said Richard Lambert, the CBI's director-general. "Faced with a global confidence crisis, a rapid fall in demand and credit constraints, UK firms have been forced to scale back investments and cut jobs."

Prime Minister Gordon Brown has pledged billions to revive lending as a housing slump deepens and job losses mount. The CBI expects the economy to shrink 4.5 percent from when the recession started, in the third quarter of last year. Output will stagnate next year, it said.

Government net borrowing will balloon to 148.7 billion pounds (US$211 billion) in the next financial year, or 10.6 percent of GDP, and then rise to 11.8 percent of GDP the following year, the CBI said in the forecasts.

Chancellor of the Exchequer Alistair Darling said in November that borrowing would be 8 percent of GDP in the year ending March 2010.

Housing market drops

As banks rationed loans, home values slumped. The average price advertised by sellers in February recorded the biggest annual fall since at least 2002, declining 9.1 percent to 216,163 pounds, real estate Website Rightmove Plc said yesterday. In London they fell 3.5 percent. Mortgage approvals stayed close to a decade-low in December, the Bank of England said last month.

House prices will probably decline 15.5 percent this year, the CBI said. Rightmove forecasts 10 percent.

Unemployment will rise to more than 3 million by the second quarter of 2010, up from 1.97 million at the end of last year, according to the CBI. The inflation rate will drop to 0.1 percent in the third quarter of this year.


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