CBI cuts growth forecasts on rate rise fears

Britain's biggest business group today issued a stark warning that interest rates are set to rise again, and trimmed its growth forecast for next year.

The CBI said one more quarter-point rate rise to 5.75 per cent would be needed to drag inflation, running at 2.5 per cent, back to its 2 per cent target. But it softened the blow to homeowners and businesses by predicting that rates will be coming down again by the end of next year.

Higher borrowing costs mean slightly weaker economic growth is now expected in 2008. The economy is still forecast to expand by 2.9 per cent this year, but next year's growth will ease to 2.4 per cent, down 0.2 percentage points on the CBI's March forecast and just below the Treasury's 2.5-to- 3 per cent prediction.

The CBI's warning came as a member of the Bank's rate-setting committee poured cold water on calls for interest rate predictions from the Bank to improve transparency.

Paul Tucker, who is also the Bank's executive director for markets, said the practice, which has recently been adopted by central banks in Norway, Sweden and New Zealand, was riddled with difficulties.

He told a conference in Cambridge that in a one-person, one-vote system it would be difficult to find a sufficiently stable majority to vote on the future path of rates. Such statements, he added, "would be conditional on a whole host of judgements about what was going on in the economy and about how the economy works".