Mon 16 Jun 2008
Economic growth to slow to 17-year low
Economic growth in 2009 is expected to slow to its lowest level since the early 1990’s as the economy comes under pressure from higher commodity and oil prices, along with weaker consumer demand, the Confederation of British Industry (CBI) predicted today.The CBI has lowered its prediction forecast for UK gross domestic product (GDP) growth in 2009, by 0.4% to just 1.3% – the lowest rate since 1992. However, the employers' group's prediction for growth in 2008 is largely unchanged at 1.7%, down only 0.1% on March's forecast.
In a gloomy outlook, the CBI predicts that the cut in consumer spending, which has already slowed, would intensify, driving consumption growth down to just 0.7% next year – which is again the lowest level since 1992 when it was 0.5%.
Oil is expected to remain above $100 a barrel, while inflation is expected to exceed 3% for the remainder of 2008, peaking at 3.8% in Q3 due to ongoing increases in the price of commodities.
However, inflation is expected to fall as we move into 2009, which should enable the Bank of England to cut interest rates twice by Q2 2009, to a level of 4.5%.
CBI director general Richard Lambert commented: "Over the past year, the CBI has consistently had to revise down its forecasts for economic growth. The main reason is that the oil price – measured in depreciated sterling – has continued to rise strongly, roughly doubling since the spring of 2007.
"This has squeezed household incomes and companies' profit margins, and has also made it much harder for the Bank of England to cut interest rates in the face of the economic slowdown.
"Our best bet is still that there will be a measure of economic growth in 2009. But the outlook has deteriorated in recent months, and considerable uncertainties remain."
However, Lambert does not think that a recession is imminent, stressing that "we should avoid believing a recession is inevitable, or talk ourselves into unnecessary trouble."
Posted by Marc Da-Silva
in Bank of England, Confederation of British Industry, News, Richard Lambert on Mon 16 Jun 2008
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