Don't talk us into recession, CBI chief tells doom mongers

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The Independent Online

Britain's biggest employers' group yesterday accused some commentators of "talking the economy down", warning their fears could become a self-fulfilling prophecy.

Britain's biggest employers' group yesterday accused some commentators of "talking the economy down", warning their fears could become a self-fulfilling prophecy.

Speaking as the Bank of England ignored calls to cut interest rates to leave borrowing costs unchanged, the CBI said confidence in the economy was "fragile".

Other business groups condemned the Bank for a lost opportunity to prop up a weakening economy.

Ian McCafferty, the CBI's chief economic adviser, said: "We must avoid talking ourselves down. The outlook is still for continued, if somewhat more modest growth.

"It is easy at this point to focus on the negatives at which point they can become a bit self-fulfilling."

He said there was a growing misconception that because the economy had slowed it was inevitably heading for a crash. "Some air has come out of the balloon and we are no longer at 31,000ft but at 25,000ft but it is airborne and floating horizontally and not plunging to the ground."

The decision by the monetary policy committee to keep rates unchanged at 4.75 per cent for the 10th month in a row had been unanimously predicted.

The Trades Union Congress criticised the decision as being "too cautious".

Kevin Hawkins, the director general of the British Retail Consortium, said: "The BRC is naturally disappointed with the Bank's failure to reduce the interest rate by the modest 0.25 per cent we had advocated."

Russell Jervis, the managing director of haart estate agents, said: "The housing market cannot sustain rates at this level and the decision to not adjust interest rates may do more damage than good."

A growing number of analysts in the city predicted the next move would be down as retail, manufacturing and housing continued to weaken.

"A cut is coming ever nearer," said Tom Levinson, at ING Financial Markets. "We remain concerned about the outlook for the economy, in particular the consumer sector."

The National Institute of Economic and Social Research estimated GDP growth of just 0.3 per cent in the three months to March. Martin Weale, its director, said: "If weak growth persists the case for a reduction becomes stronger but, with very limited spare capacity in the economy, we do not think it yet exists."

The Bank's decision came after figures showed an unexpected rebound in both factory output and exports. Manufacturing output rose by 0.9 per cent in April, partially offsetting a 1.6 per cent fall in March, the biggest fall for a decade, the Office for National Statistics said. But the rise still left manufacturing down 1.4 per cent on the previous three months, the worst out-turn since January 2002.

Separate figures showed exports rose 4 per cent in April to a record £25.1bn on the back of a 7.5 per cent jump in sales to countries outside the European Union. However a strong rise in imports left the net deficit £200m wider at £3.4bn. The goods deficit also widened by £200m to £4.8bn.

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