CBI adds to economic gloom by cutting growth forecasts

Click to follow
The Independent Online

The CBI, the UK's largest business lobby group, slashed its forecasts for economic growth over the coming two years and changed its view on interest rates to say the next move would be down.

The CBI, the UK's largest business lobby group, slashed its forecasts for economic growth over the coming two years and changed its view on interest rates to say the next move would be down.

It said the economy would grow by 2.5 per cent this year slowing to 2.3 per cent in 2006, down from 2.7 and 2.6 per cent respectively in its February forecast.

"The central message is that the economic outlook has weakened since February," said John Cridland, its deputy director-general. "The UK economy has undoubtedly slowed and consumer spending is undoubtedly down as interest rate rises are having an impact."

It cut its forecasts for consumer spending to 2 per cent this year from its previous estimate of 2.2 per cent and last year's "bumper" rise of 3.3 per cent.

Doug Godden, its head of economic analysis, said: "There is a possibility of seeing a more abrupt slowdown in consumer spending mainly related to feelings about the housing market.

"If we were to see a decline [in house prices], that would lead to consumers becoming much less willing and less able to borrow and we would then see consumer spending more constrained."

But he said he did not agree with gloomier City forecasts that there was a risk of a vicious circle as lower spending led to job losses and home repossession that would lead to lower spending and higher.

The CBI changed its interest rate view from February, when it was looking for a further quarter-point rise, to forecasting rates staying on hold for the foreseeable future. It raised its forecasts for public borrowing, saying that Gordon Brown would miss his "golden rule" - to borrow only to invest over the economic cycle - by an "insignificant" 0.04 per cent of GDP in the current cycle.

But it warned that the Government would have to raise taxes to fill a gap in the next cycle.

There was more positive news from the motor industry, where the Office for National Statistics revised up car production in March by more than 7 per cent.

Comments