CBI cuts growth forecast

The manufacturing sector is still struggling

The weakness of the global economy has led one of the main UK employers' organisations to cut its growth forecast for UK economy.

(The Chancellor) should not respond to shortfalls in tax revenues by further raising the business tax burden

Ian McCafferty, CBI

The Confederation of British Industry (CBI) said it now thought the UK would grow by 2.4% next year, down from its previous estimate of 2.7%.

The CBI also urged the government to cover any budget deficit by increasing borrowing instead of raising taxes.

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Separate data from the CBI on Wednesday showed the UK's manufacturing sector was continuing to struggle.

Slowdown

The CBI maintained its growth forecast for 2002 at 1.5%.

The Treasury has forecast growth of 2 to 2.5% this year, and 3 to 3.5% next year, but these figures are expected to be lowered when the Chancellor Gordon Brown delivers the pre-budget report next week.

"The rebound in global demand in 2002 has been anaemic and the risks of slower growth in the G7 through the winter are rising," said the CBI's chief economist Ian McCafferty.

"But the UK has weathered the storm better than other leading industrial nations and we still expect a decent recovery in the course of next year."

The slower-than-expected growth in the UK this year has hit the government's finances.

Figures released earlier on Wednesday showed that the spending deficit for the first seven months of the financial year has reached more than £10bn, nearly as much as had been predicted for the whole year.

Speculation has risen that the government may have to raise taxes to plug the spending gap.

But the CBI urged restraint.

"It is an open secret that the Chancellor plans to revise his growth forecast," said Mr McCafferty.

"But he should not respond to shortfalls in tax revenues by further raising the business tax burden.

"We would prefer a short-term rise in borrowing with a firm grip on public finances in the medium-term."

Manufacturing struggles

The CBI's latest monthly trends survey hinted at a slight strengthening in the UK's beleaguered manufacturing sector.

The best you can say is that the manufacturing sector is bumping along the bottom

Doug Godden, CBI

The survey found 14% of firms had experienced orders above normal levels, while 36% said orders were below normal.

The negative balance of 22% was an improvement on the previous month's balance of minus 33%.

However, the weakness of the global economy meant that export orders remained depressed, and output expectations were less buoyant than in recent months.

"These figures are an improvement compared to last month but there is little sign of a real recovery," said Doug Godden, head of economic analysis at the CBI.

"The best you can say is that the manufacturing sector is bumping along the bottom."