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The Confederation of British Industry (CBI) has warned the UK economy will grow at its slowest rate in 17 years in 2009.
Its report out today says rising energy costs will stifle consumer spending and annual growth will fall from 1.7 per cent to 1.3 per cent.
Director general, Richard Lambert, said there were no predictions for recession as firms are "leaner and more efficient and our economy’s reach is far more global".
The CBI has predicted inflation will rise to 3.8 per cent in the third quarter of this year. Once inflation has subsided, it predicted the Bank of England would again cut interest rates, to 4.5 per cent.
The confederation’s chief economic advisor remained upbeat. Ian McCafferty said: "The impact of the credit crunch on economic activity is unraveling much as we had expected, with most firms so far relatively unaffected."
It is hoped that by lowering the rate at which banks lend to each other, investors interested in commercial property in London will get easier access to funds.