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Difficult year for 2008

2008 will be a “difficult year” for the British economy, but it is important not to exaggerate the risks and talk ourselves into a more serious downturn, the CBI’s Director-General has said.

The most likely outcome is a “soft landing” as the economy slows, Richard Lambert said, despite the uncertain times ahead and with the UK exposed to twin shocks from rising commodity prices and the continuing credit crunch.

Mr Lambert also listed five reasons for feeling more cheerful about the future - including the equity that many households have got locked away in their homes. Around 60 per cent of mortgage borrowers have more than £100,000 of equity in their homes, compared to less than 10 per cent in 1993. That gives them “a comfortable cushion to fall back on if times get tough”, he argued. Another plus point is that the Bank of England has been “doing a good job of managing inflation expectations”.

In his message, the head of the country’s biggest business group says that “We may be entering a new phase” in the structure of the global economy, with a “bumpier ride in the years to come” a real possibility. He reflects that “the global economic balance of power is shifting East” to China and India, who have driven growth as the US economy has slowed, and that alongside this “we appear to have moved into an era of high energy prices, and one where investment decisions will be dictated in part by the price of carbon”.

This was posted in Bdaily's Members' News section by Ruth Mitchell .