CBI slashes growth outlook on economy

BRITAIN'S biggest business group today cut its forecasts for economic growth over the next two years, blaming sky-high oil prices and the consumer downturn.

The CBI now thinks the economy will expand by 2.5% this year rather than the 2.7% it predicted in February. For 2006, its forecast has been lowered from 2.6% to 2.3%.

The new forecasts bring the CBI into line with most City experts and put more pressure on Gordon Brown to ditch his 3% to 3.5% growth prediction for this year.

They came as it emerged that manufacturing remained in the doldrums in May, with order books at levels last seen in late 2003 when the sector was mired in recession.

With oil prices likely to remain close to $50 a barrel, global consumption will be subdued which will in turn dampen UK export growth, the CBI said. Meanwhile, consumer spending growth will remain weak as higher interest rates make debt-laden households reluctant to splash out.

CBI deputy director general John Cridland said: 'The economic outlook for the next two years is relatively healthy, but the business sector is facing tough conditions. All our forecasts strengthen the case against any further rise in interest rates.'

Most City economists agree that rates have peaked at 4.75%. The CBI's latest snapshot of the manufacturing sector showed that a net 22% of firms said orders were below normal in May against 24% in April.

Output is expected to remain flat over the next few months, and 20% of manufacturers are poised to cut their prices.

London set for slowdown as the spenders cut back

DEBT-laden Londoners will put the brakes on the capital's economic growth this year, the Centre for Economics and Business Research (CEBR) said today.

In its latest forecasts, it sees London's economy expanding a modest 2.8% this year compared with an average of 3.8% since 1997. The CEBR says growth will weaken to 2.6% in 2006, and unemployment edging up by 11,000.

Surveys have shown London bucking the national trend of a High Street meltdown. Retail sales were up an annual 3% in April compared with a 4.7% fall nationally, according to the London Retail Consortium.

However, the CEBR said ongoing property market jitters would make consumers increasingly reluctant to spend.

It reckons London house prices will fall by 0.6% this year and by 2.2% in 2006, but there will be lingering worries the downturn could be more severe.