Economy still doing well, says CBI
RECENT turbulence in the credit markets is likely to have a limited impact on the UK economy.
But economic growth will nevertheless be slower in 2008, only partly as a result, the Confederation of British Industry has said in its latest economic forecast.
Predicting a reduction in consumer spending growth next year and weaker overseas demand, the CBI revised down its economic growth forecast for 2008 by 0.2% to 2.2%.
At the same time, it lifted this year’s annual growth rate by 0.1% to 3.0%, after a better-than-expected third quarter.
With inflationary pressures easing in the last three months, the business group has revised down its forecast for inflation by the end of the year. The outlook for interest rates has become more uncertain, with the Bank having to be mindful of both its inflation mandate and the need for stability in the banking system.
But based purely on the expected outlook for the real economy, the CBI has brought its expectation for a quarter point cut in interest rates forward to the second quarter of 2008.
Richard Lambert, CBI director-general, said: “The UK economy is in good shape to ride out the current financial storm.
“British businesses have been growing strongly this year and the fundamentals of the economy are sound.
“The impact on both consumers and business of the turmoil on the credit markets should be relatively limited. The housing market is likely to weaken further, but at present only new and re-financed mortgages are affected, so the effect on personal incomes, and hence consumption, should be modest. Business is reporting little difficulty in financing its investment plans, though we are monitoring the position for small business, which is more dependent on loan finance, closely.
“Clearly, a lot will now depend on confidence and we welcome the support given by the Chancellor in this regard.
“The Bank, too, will need to be alive to any serious signs of a decline in confidence.”
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