CBI urges prudence over tax cuts

DIANE COYLE

Economics Correspondent

The Confederation of British Industry's survey of trends in manufacturing showed a further slowdown this month. The survey is the last economic news before Tuesday's Budget.

However, the employers' organisation said there was no evidence that the economy was heading into recession. It advised the Chancellor to keep Budget tax cuts prudent to avoid the need for higher base rates in future.

The CBI's economists trimmed their forecast for growth down to 2.5 per cent next year from an expected 2.7 per cent this year, but predicted a faster pace of expansion in 1997.

Sudhir Junankar of the CBI said: ''I do not think the evidence suggests we are at a defining moment when the economy stops growing.'' After a few sluggish months demand would pick up part-way through 1996, he said.

The CBI's forecast assumes that modest tax cuts announced next week are paid for by reductions in government spending. It predicts base rates could then fall half a point early next year, at the same time as inflation declined towards the Government's 2.5 per cent target.

On the other hand, a tax giveaway of pounds 4bn not financed by reducing expenditure would take inflation above the target. This would bring the danger of higher interest rates.

Kate Barker, the CBI's chief economist, admitted that the main risk was that growth would turn out lower than forecast. November's survey of industrial trends showed that the expansion had slowed down. ''But there is nothing in the survey to say there is a manufacturing recession,'' she said.

The balance of firms expecting output to rise during the next four months over those expecting a decline fell to 9 per cent. There was a negative balance of 9 per cent expecting above-normal orders in the next four months.

Export orders were the lowest in any monthly survey since June 1994, although still close to normal. Domestic orders were weaker than export orders.

Companies said their stocks of finished goods were more than adequate to meet demand, with the November balance of 18 per cent similar to recent months and significantly higher than earlier in the year. Big firms reported the highest stock levels. Producers of intermediate goods - and especially artificial fibres - reported well above normal levels. Ms Barker said: ''This is clearly dampening expectations of increasing output into the new year.''

Despite the continued slowdown, the balance of firms expecting to raise prices increased to 15 per cent, up four points in a month. The CBI said this reflected the traditional rise in list prices in January. Adjusting for this effect, price expectations were roughly flat.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition

Orthorexia nervosa

How becoming obsessed with healthy eating can lead to malnutrition
Lady Chatterley is not obscene, says TV director

Lady Chatterley’s Lover

Director Jed Mercurio on why DH Lawrence's novel 'is not an obscene story'
Farmers in tropical forests are training ants to kill off bigger pests

Set a pest to catch a pest

Farmers in tropical forests are training ants to kill off bigger pests
Mexico: A culture that celebrates darkness as an essential part of life

The dark side of Mexico

A culture that celebrates darkness as an essential part of life
Being sexually assaulted was not your fault, Chrissie Hynde. Don't tell other victims it was theirs

Being sexually assaulted was not your fault, Chrissie Hynde

Please don't tell other victims it was theirs
A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border