Economy ‘will ride out storm’

Sep 19 2007 by Iain Laing, The Journal

THE CBI has cut its forecast for UK economic growth following the recent turmoil in credit markets.

The industry body said it now expects GDP growth of 2.2% next year, a reduction of 0.2% from its June forecast.

The move follows the recent turbulence in global credit markets which has seen mortgage bank Northern Rock struggle to secure funding, leading to a fall in consumer confidence in the economic and banking system.

However, the CBI added that economic growth in the current year was set to rise by 0.1% to 3% after a stronger than expected third quarter.

Additionally, the CBI brought forward its expectations for a quarter-point cut in interest rates to the second quarter of next year.

CBI director general Richard Lambert said: “The UK economy is in good shape to ride out the current financial storm. British businesses have been growing strongly and the fundamentals of the economy are sound.”

He added that the current turmoil, sparked by the collapse of the US sub-prime mortgage market, had put a small number of businesses reliant on short-term credit under pressure.

Mr Lambert, a former member of the Bank of England’s monetary policy committee, also hailed the “bold” move by Chancellor Alistair Darling to guarantee savers’ deposits at Northern Rock.