THE CBI said today it no longer believed interest rates would fall this year, as the Bank of England moves to tackle inflationary pressures in the economy. The business lobby group's latest quarterly survey predicts interest rates will rise to 5.5% in the next quarter and remain unchanged during 2008. Its more cautious stance contrasts with its December forecast - made before the Bank's shock rate rise in January - which suggested rates could fall this autumn. The CBI predicted higher than expected growth of 2.9% in 2007, up 0.2% from its December estimate, but a fall back to 2.6% in 2008 as controls on public expenditure kick in. But the lobby group also fired a shot at the Government, saying Chancellor Gordon Brown should move to protect the higher than expected growth by reducing the burden of business taxes. The organisation is pushing for the burden to be cut by £9bn by 2010/11. CBI deputy director-general John Cridland said: "If we want to maintain these levels in the longer term, we need to ensure the right conditions are in place for business to prosper." Home owners could also come under more long-term pressure as consumer demand and rising prices put the Bank of England's inflation targets under strain, the CBI said. While the business lobby group's latest economic forecast predicts Consumer Price Index inflation could fall as low as 1.6% next year, it said the measure risked heading back above the Bank's 2% target in 2009. Ian McCafferty, the CBI's chief economic adviser, said: "The inflationary impact of last year's surge in oil and energy costs is fading while pay settlements seem, so far, to have been pegged to sensible levels. "But underlying pressures remain, as consumer demand remains healthy and companies start to push up prices to rebuild profit margins, which have been squeezed in recent years." Mr McCafferty added: "I expect the Bank will guard against these pressures by maintaining a tight grip on monetary policy." Government expenditure is predicted to grow by 10.6% this year. The CBI said consumer spending would rise by 2.6% in 2007 through wage growth and higher inflation, with manufacturing output also expected to rise 2.1%. Mr McCafferty also predicted a "soft landing" for the US economy, despite fears over sub-prime mortgages hitting stock markets this week. He said: "By its very nature, the sub-prime market is the riskier end of the market, but it accounts for less than 20% of the total mortgage market in the US. There is no sign in the prime mortgage market that they are suffering any signs of distress yet." | 
RSS News Feed