At face value the latest report from the CBI is pretty worrying - but actually when you think about it, it’s not so bad. The real worry lies in the possibility the CBI is wrong.
The employers’ organization reckons the UK’s growth will slow to 2 per cent next year. This is pretty much in line with what a number of others are forecasting, and slightly worse than the Treasury’s estimate of 2 to 2.5 per cent.
Of more concern is the time the CBI thinks it will take before things are back to normal. It thinks that things will hit bottom in the last quarter of next year - at which point annualised growth will be just 1.6 per cent, and that even in 2009 growth will be just 2.1 per cent.
That growth rate is not good, but it’s not especially-bad either. Ian McCafferty, chief economic adviser at the CBI said: “Whilst the 2008 slowdown may appear dramatic set against this year’s strong growth, the fundamentals of our economy remain sound and talk of a full-blown recession is overstated”.
More worrying, however, the CBI has now downgraded its projections for next year’s growth three times in a row. If it changes its mind downwards many more times, then its projections will be looking more-alarming.
Mr McCafferty said, “Uncertainty surrounds the extent to which current credit conditions will affect both business and consumer confidence, and how far the property markets will suffer.”
The real concern lies with that word Uncertain. Up to now, economic forecasters have repeatedly erred on the optimistic side. Every recent report, whether it is from the CBI, IMF, OECD or others, seems to downgrade its previous estimate. There is no longer much scope for further downgrades, without, that is, forecasting recession.
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