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Tuesday, October 20, 1998 Published at 16:02 GMT 17:02 UK

Business: The Economy

CBI warns of global slowdown

The CBI fears a recession in manufacturing

The Confederation of British Industry has warned that the global economic slowdown will hit Britain harder than expected.

It is revising down its forecast of economic growth and calling for further cuts in interest rates in steps of at least 0.5%.

It says with more "aggressive action" by the Bank of England the risk of the slowdown turning into a deep recession could be avoided.

However, the organisation warns that job losses are probably unavoidable, and that manufacturing may struggle for years to recover some of its lost export markets.

Fundamental changes

Adair Turner, Director-General of the CBI, said that the balance of risk in the world and UK economy had now shifted, with deflation replacing inflation as the main worry.

He praised the action of the US central bank, the Federal Reserve, in cutting interest rates twice, and said he hoped that European interest rates would all converge at the lower level of 3.3%

But he urged the world's central banks "to consider further reductions as the situation develops."

And he said he hoped the Bank of England would consider making bigger rate cuts in steps of at least 0.5% at a time.

Mr Turner refuted claims that the public finances were facing a "black hole." He said that, given the slowdown, "it is important that the government does not respond to a rising deficit by raising taxes or increasing taxes. They are in a position to accept a temporary rise in the deficit."

Manufacturing in recession

The CBI will be revising downwards its August forecast, said its chief economist, Kate Barker.

That forecast for 1.2% growth in 1999 is already substantially below that of the government, which is also expected to publish a revised figure next month.

But Ms Barker said that for manufacturing industry it was probably too late to avoid a recession.

Export markets which had been hit by the high pound could not be easily retaken as global demand was so weak.

But more interest rate cuts could prevent consumer and business confidence from spiralling down further.

Ms Barker said that she now expected net unemployment to rise next year, as the loss of manufacturing jobs would not be compensated by further growth in the service sector.

In the last forecast the CBI had said that unemployment would broadly stabilise.

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