The UK economy will not return to growth until the beginning of next year, the CBI has said.
The business group said although the economy is stabilising, modest growth will not resume until the first three months of 2010, although it will pick up momentum over the course of the year.
The CBI said the willingness of private sector workers to accept wage freezes and short-time working should help to stem job losses this year, and it predicts unemployment will peak at a slightly lower level than previously thought, at 3.03 million in the second quarter of next year.
Consumer spending will be constrained by unemployment, an increased savings ratio and modest increases in incomes. As a result, household consumption will shrink by 2.9% in 2009 and will grow by just 0.5% in 2010.
CBI chief economic adviser Ian McCafferty said: “We still have some way to go before the UK economy 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 lower incomes eat into their ability to spend.
“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.”