Economy 'will be uncomfortable'

11-08-2008

Economy 'will be uncomfortable'
The CBI has warned members the downturn in the economy could be more severe than previously feared.

Richard Lambert, director general of the CBI, wrote in a letter to members that "uncomfortable times" lay ahead and growth prospects into 2010 seem "no better than anaemic".

The employers' organisation has now slashed its growth forecast for 2009 from one per cent to 0.4 per cent.

The fall in growth and real threat of recession were put down to lingering effects of the credit crunch along with high inflation from oil, energy and food prices.

Mr Lambert wrote: “The credit crunch has turned out to be bigger and broader than at first appeared likely. The fact that inflation has been running so far above target has meant the Bank of England has not been able to cut interest rates.”

"Last July inflation was running at 1.9 per cent. It now seems likely that inflation will peak somewhere around five per cent later this year."

However, Mr Lambert's message was tainted by a little positivism.

"Business conditions are not as bleak as you would conclude from the newspaper headlines," he wrote.

"I come across a lot of companies still doing well."

Yesterday, the chief executive of the Financial Services Authority (FSA) also warned consumers and the financial sector to prepare for difficult economic times.

In a BBC interview he stated the current downturn would be worse than expected.

"I was expecting, if you like, a more conventional correction that followed the patterns of a straightforward downturn. This has clearly been far more than that. We've seen massive disruptions of the financial markets, particularly liquidity problems which were not anticipated."

Mr Sants urged also banks and consumers to be more prudent with their finances over the next few months and plan on the assumption there will be a recession akin to that of the 1990s.

Attention now turns to the Bank of England, which this week issues its August Inflation report – outlining predictions for UK growth, inflation and interest rates.

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