Saturday, January 19, 2008

Economic Scene

The economic forecast for the UK in 2008 does not make pleasant reading. The effect of the sub prime lending crisis remains with banks continuing to be nervous over lending. The Northern Rock debacle remains unresolved and with time running out it looks increasingly like the Bank will be nationalised. Sterling’s value is dropping through the floor against the Euro, 76p at time of writing, and also weakening against the dollar. The likelihood of further rate cuts in the UK during the year will do nothing to arrest this trend. After a quarter percent cut in December, the Bank of England decided to leave rates on hold at 5.5% in January but a further cut in February is virtually a given, despite inflation risks from higher energy prices. Forecasters predict a rate of between 4% and 4.5% by the end of 2008. This will be necessary to kick start the housing sector and inject a degree of consumer confidence back into the high street. The government will be determined to avoid a recession at all costs.


Many independent businesses will be awaiting the Chancellor’s decision on the treatment of capital gains tax following the ill thought through announcement in the Pre-Budget statement late last year. Time is now running out as April approaches and the Chancellor must announce his review finding shortly. With both Northern Rock and CGT on his mind, Alistair Darling cannot be sleeping too easily right now!


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