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CBI foresees slowdown but plays down recession fears

17 December 2007 / by None
A new report from the Confederation of British Industry (CBI) warns that there is to be a significant slowdown in economic growth in 2008 as a result of the global credit crunch situation combined with higher energy prices.

Its quarterly forecast predicts that the UK economy will grow just two per cent in 2008, falling 0.2 per cent compared with its September forecast. This is a major drop compared with the three per cent growth reported for 2007 and reflects a decline in consumer confidence as a result of widespread problems in the worldwide financial markets.

Chief economic adviser, Ian McCafferty, said: "Uncertainty surrounds the extent to which current credit conditions will affect both business and consumer confidence and how far the property markets will suffer. Borrowing conditions are already tighter for some households and businesses."

The confederation is expecting consumer spending to fall from 3.1 per cent in 2007 to 1.9 per cent next year. And, although household incomes are expected to show slightly higher growth than this year, consumer spending is unlikely to reflect this.

It predicts that investment levels will show dramatic. The 5.7 per cent growth reported for 2007 is expected to plummet to just 1.8 per cent next year, primarily because of a decline in property-related spending. Despite this, business investment should remain fairly steady.

Inflation will rise over the next 12 months as a result of higher oil, gas and food prices. The CBI predicts inflation will peak at around 2.6 per cent later on in the year before falling back to around the target rate of two per cent by the end of 2009.

The Bank of England is likely to follow up on the 0.25 per cent interest cut seen this month by introducing further reductions at some point in the new year. The CBI believes a third cut may be necessary next year if the financial climate is still showing serious signs of struggle.

However, there is no need to panic, according to Mr McCafferty. "Whilst the 2008 slowdown may appear dramatic set against this year’s strong growth, the fundamentals of our economy remain sound and talk of a full blown recession is overstated," he said.

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