The Confederation of British Industry (CBI) has been forced to scale back its economic expectations for 2008 amid growing concerns about the impact of the credit crisis on UK firms.
In a report out today, the CBI said that for the third consecutive quarter it has downgraded its initial forecast in the face of continuing uncertainty in the credit market as well as soaring oil prices.
Its new prediction puts the annual rate of UK growth at two per cent. In September, the CBI had estimated a figure of 2.2 per cent for the year ahead.
The organisation, which represents the interests of 240,000 businesses in the UK, blamed a dip in consumer confidence for the more pessimistic outlook.
The CBI said higher oil and food prices will likely push up inflation in 2008, reaching about 2.6 per cent by the end of the year.
CBI chief economic adviser Ian McCafferty reckoned that the year ahead looked set to be "incredibly challenging" for the Bank of England.
"It [the Bank] has to keep a very careful eye on rising prices for commodities such as oil, gas and food as well as consumers' inflation expectations, whilst ensuring monetary policy doesn't unnecessarily impact on an already slowing economy," he said.
Despite its somewhat gloomy outlook, however, the group said it did not think that a "full blown recession" was inevitable.
Meanwhile, small businesses (SMB) in the UK are continuing to struggle under the weight of the current credit crisis, according to a Bank of Scotland survey.
It reckoned that more than 60 per cent of SMBs agreed that economic conditions will worsen in 2008, up some 24 per cent on the same period in 2006. And, underlining that forecast, the bank's confidence index dropped in Q3 from 48 in April to 42.
According to the survey, small firms have been forced to take "a more cautious approach" to spending as borrowing from banks has tightened since the summer.
Ivan Matviak, business banking head at the Bank of Scotland, said an "impenetrable maze of red tape" and an increasing tax burden had pushed many SMBs into a corner "that offers very little support or encouragement".
The survey, results of which were collected by The Opinion Research Business and garnered from conversations with 1,000 SMB bosses, showed that 38 per cent of SMBs thought that under the current economic uncertainty it was a bad time to have a business in the UK.
It also found that the biggest miserablists were small firms based in Yorkshire and the West Midlands, while Scotland boasted businesses that were most optimistic about the financial outlook for 2008. ®