The CBI has forecasted that present financial crisis in the UK will continue to have its impact on country’s economic growth next year also.
According to the CBI (Confederation of British Industry) forecast, the present credit crisis in the UK will continue to hamper the growth next year also because household expenses are severely hit by price rise in essential commodities and energy bills are rising, thereby reducing consumer spending, as reported by Yorkshirepost.
Britain is currently facing severe financial crisis and is facing economic uncertainty as it slashed down its projected growth rate for 2008 and 2009. The latest quarterly forecast from business organizations has predicted 1.8% growth for 2008, which is 0.2% less from earlier projection. For 2009, the growth is expected to decline further to 1.7%. Even the household spending is predicted to stay at 1.6% this year against 3.1% last year.
According to the industry experts, spiraling prices of essential commodities are increasing the inflation pressure and reducing the household incomes. Moreover, the lending practices become stiffer that is leading to additional pressure on household expenses. It is expected that consumers will focus on saving next year. Moreover, rising import duties will also affect the spending power of people in coming months and growth in employment is not likely to help raise consumer income in any way.
Furthermore, inflation is projected to shoot up because of slowdown in the country’s economy. It is predicted that inflation will touch the peak level in the third quarter this year following excessive increase in prices of petrol, electricity, gas and food. Depreciating value of pound is also adding to inflation. Besides considering the current financial crisis in Britain, the CBI is expecting two cuts from Central Bank in 2008 and one cut in the beginning of 2009 to bring rates to 4.5%.
However, experts believe that flexible labor market and good corporate balance sheets of the UK will help economy to show some growth in 2008 and 2009 before bouncing back with gradual recovery.
A Senior Research Analyst at RNCOS said, “Britain’s economy will show some growth despite adverse conditions as household and corporate balance sheets are strong. The British companies are adopting a different approach for financing projects with retained profits instead of taking loans from banks, which have given them protection against current financial crisis. Therefore, businesses in the UK should focus on corporate investment.”
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