Byline: Aled Blake
THE UK faces prolonged economic misery from the impact of the credit crunch, a leading business organisation is warning today.
The CBI said the effect of the tighter lending conditions on households and business "was yet to be fully felt" as it slashed growth estimates for this year and next.
Its latest quarterly forecasts now predict UK growth of 1.8%in 2008, weakening to 1.7% the following year.
The increasing pessimism contrasts with its previous expectations of 2% growth this year and 2.1% in 2009.
"The process of credit tightening will act as a drag on real activity, thus prolonging the slowdown into 2009," the CBI said.
The credit crunch has also magnified the effect of five interest rate hikes in the run-up to July last year, intended to cool the UK's soaring growth and ease inflation, the organisation added.
Chancellor Alistair Darling lowered growth forecasts for 2009 in his budget two weeks ago, although Treasury hopes for the economy to expand by between 2.25% and 2.75% next year are well above the CBI's latest estimates.
Chief economic adviser Ian McCafferty said UK firms were in relative health after strong profits in recent years, but if banks' access to cash remained constrained, the impact was "as much a 2009 story as one for 2008".
"Rather than being a short sharp shock that would drive the UK economy close to, or into, recession in the near future, it is better thought of as a longer term headwind that will hold back any recovery until well into 2009, and limit the potential pace of growth of the economy for some time thereafter," Mr McCafferty said.
The CBI also warned the squeeze on consumer spending would be sustained for much of 2008 with disposable income under pressure from soaring energy and food prices, while wage settlements and earnings are not expected to rise in response. …