By Ambrose Evans-Pritchard and Angela Monaghan Published: 6:00AM BST 15 Jun 2009  Ian McCafferty, the business lobby group's chief economic adviser, said the Bank's Monetary Policy Committee will continue its programme of quantitative easing for some months before "nudging up" interest rates from its historic low of 0.5pc.  "We will need to see some move back to normality in monetary policy as and when the economy recovers," he said. The comments are likely to fan further expectations around the world that Anglo-Saxon central banks may start to withdraw emergency stimulus faster than expected just weeks ago.  Any signs that either the Bank of England or the US Federal Reserve could be mulling rate rises as soon as this autumn risks triggering an abrupt flight from the bonds markets, pushing interest yields significantly higher. There is a danger that this market reaction could itself kill off any recovery before its gets off the ground.  Professor Tim Congdon, head of the consulting group International Monetary Research, said the world economy is still too fragile to risk monetary tightening.  "It is much too early to talk of rate rises," he said. "We have gone through a ghastly experience over the last nine months and we still need to get this behind us. I am as much in favour of sound money as any but there is no danger of inflation at this point.  "The data coming from the eurozone is dreadful and M2 money supply growth in the US is slowing again. It is very premature to celebrate."  US Treasury Secretary Tim Geithner said at the meeting of G8 finance ministers over the weekend that the world faces "acute challenges" but agreed to a joint statement saying it was time "to prepare appropriate strategies for unwinding the extraordinary policy measures taken to respond to the crisis once the recovery is assured".  The CBI believes the economy will contract at a slowing rate over the summer before stabilizing in the fourth quarter. Moderate growth will start to pick up early next year but the business lobby cautioned against excess optimism.  "We can't say with great certainty that the recession is over," said Richard Lambert, the CBI's director general.  "Some commentators have been carried away by recent tentative indicators as evidence of 'green shoots'. It will take some time before we can be sure these shoots have roots we can depend on for sustainable growth."  The CBI said the economy is expected to shrink by 0.3pc in the second quarter. While this is much better than the 0.7pc drop it forecast as recently as April, the upgrade still puts the CBI at odds with the National Institute of Economic and Social Research, which has already called an end to the recession.  The CBI expects that the economy will have shrunk by a cumulative 4.8pc from peak to trough – not as severe as the 5.9pc contraction in the early 1980s recession.  It has scaled back the forecast for unemployment, expecting it to peak at 3.03m in the second quarter of 2010. Previously it estimated jobless numbers would reach 3.2m.  Mr McCafferty said the CBI had been surprised by the flexibility of the UK labour market. One third of private sector employees have accepted pay freezes, while others were working shorter hours.  A study of executives at 570 global companies by Ernst & Young found that "the majority of companies are still focused on survival", with all but the best companies struggling to obtain credit on anything other than punitive terms.
The CBI has sharply upgraded its growth forecasts and given warning that the    Bank of England may begin raising interest rates by the end of the year,    much sooner than widely expected.