We were too optimistic, CBI admits
Inflation is set to reach 5 per cent this year, the employers’ group warns its members
Business should brace itself for a prolonged rocky ride as the economy deteriorates faster than expected, CBI director-general Richard Lambert has warned.
In a letter to members of the UK’s largest business group, Lambert said forecasters, including the CBI, had been “consistently over optimistic” about the economic outlook over the past year.
“The credit crunch has turned out to be bigger and broader than at first appeared likely. The fact that inflation has been running so far above target has meant the Bank of England has not been able to cut interest rates.”
He added: “Last July inflation was running at 1.9 per cent. It now seems likely that inflation will peak somewhere around 5 per cent later this year.”
The Bank is expected to announce that inflation, currently sitting at 3.8 per cent, has hit 4 per cent in July and warn that Britain is teetering on the brink of recession when it publishes its quarterly inflation report this Wednesday.
“There is no doubt that the mood has darkened in the last two or three months,” added Lambert, warning the poor state of the government’s finances meant it was ill prepared to cope with a downturn.
“This would be the worst possible time to move the goal posts, for example by shifting the (inflation) target in some way,” Lambert said. He also warned against the government loosening its self-imposed fiscal rules.