Business faces difficult year ahead

12 April 2012

British business faces a difficult year in 2008, with the outlook appearing uncertain following the "twin shocks" of rising commodity prices and the credit crunch, an industry leader has warned.

CBI director general Richard Lambert said the structure of the global economy was facing a "bumpier ride", with the economic balance shifting to China and India.

But in his New Year message, Mr Lambert said he believed the most likely outcome of a slower economy in the UK would be a "soft landing", partly because of the equity many people have locked away in their homes, and because of a reasonably fair jobs outlook.

"The third reason for a degree of New Year cheer is that the Bank of England has been doing a good job of managing inflation expectations through a very difficult period, and has room to act if it thinks the economy is going off the rails. After all, the UK has much the highest bank rate of any big developed economy.

"The recent weakness in sterling may also be important. A lower pound should help to re-balance the economy after a decade in which the currency has often looked over-valued."

Mr Lambert said the CBI will be focusing this year on the "absolute necessity" of boosting workers' skills and of strengthening the UK's flexible labour market, adding: "A competitive tax and regulatory regime will be an essential component of our future success."

The CBI leader said the economic outlook had been made much more uncertain because of the "rapid acceleration" in the costs of energy, food and other commodities, which he warned could fuel inflation.

He also warned the Government not to support the "flagging" economy by increasing public spending. "The fiscal deficit has been allowed to grow to a point which now leaves little room for leeway."

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