Higher household costs and plummeting consumer demand will spell out further bad news for small businesses, after new figures predicted the second half of 2008 will see the slowest period of growth for 17 years.
The UK economic forecast, by the Confederation of British Industry (CBI), indicated that growth will drop by 0.4% to 1.3% in 2009.
The report also predicted growth in consumer spending will see a further drop, down to just 0.7% in 2009 – the lowest since 1992.
Inflation is set to rise, with high oil prices and steep increases in commodity costs meaning it will peak at 3.8% in the third quarter of 2008.
However, by the end of 2008, a slowing economy and lower wages will help begin a descent in inflation, dropping below 3% in the first quarter of 2009.
The organisation added that once the peak in inflation has passed, the Bank of England will have the flexibility to cut interest rates twice by the second quarter of next year, to around 4.5%.
The figures came after the Federation for Small Business (FSB) announced this morning that rising fuel costs are having a crippling effect on small businesses.
“The small business community simply cannot cope with the cost of fuel rising at these rates. The problem is affecting every type of business in every area of the country,” said the FSB’s national chairman, John Wright.
However, Richard Lambert, director-general of the CBI, said there is light at the end of the tunnel.
“It is important to remember this is not a forecast for recession. Back in the early 1990s, we had a prolonged period of plummeting consumer demand and there were large job cuts across the board,” he said.
“These days, firms are leaner and more efficient and our economy's reach is far more global. We should avoid believing a recession is inevitable, or talk ourselves into unnecessary trouble.”
© Crimson Business Ltd. 2008