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Growth will reach 17 year low in 2009 says CBI

The CBI expects next year’s GDP growth to reach a 17 year low.

The employers’ body has lowered its economic forecast for growth in 2009 from 1.7 per cent to 1.3 per cent, although forecasts for 2008 have remained relatively unchanged. It blames rising commodity costs and weaker consumer demand for the drop.

The CBI expects the slowdown in consumer spending to intensify, driving consumption growth down to only 0.7 per cent in 2009 – the lowest level since 1992.

It predicts inflation to peak at 3.8 per cent in the third quarter of 2008 and remain above 3 per cent until quarter two 2009 but slowly decrease. At this point the Bank of England will have the flexibility to cut interest rates, and the CBI expects two by the second quarter next year, bringing base rate to 4.5 per cent.

CBI director general Richard Lambert says: “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.

“That said it is important to remember this is not a forecast for recession. Back in the early 1990s, we had a prolonged period of plummeting consumer demand and there were large job cuts across the board. These days, firms are leaner and more efficient and our economy’s reach is far more global. We should avoid believing a recession is inevitable, or talk ourselves into unnecessary trouble.”

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