Economic Scene

The CBI has just thrown a bucket of cold water over the UK economy in its latest report. It predicts 2009 will see growth of about 1.3%, the slowest since the 1992 recession, with unemployment rising to about 1.8m, a rise of 150,000.

 

House prices have fallen on average about £15,000 this year and many builders are now mothballing sites rather than starting work. Much hinges on the price of oil which having reached nearly $140 a barrel earlier this month is trading at $133 today. How much the price is being driven by hedge fund speculation is impossible to know. It is possible that a slowing economy could drive the price down but it is not a given.

 

The Bank Governor has had to write a letter to the Chancellor as CPI reached 3.3% in May - above the 3% ‘trigger’ for only the second time since 1997. Containing inflationary pressures, the primary aim of the Bank of England, is unlikely to preclude the possibility of rising interest rates in the months ahead, although the Chancellor may prefer to receive regular letters from Mervyn King rather than see consumers (voters!) suffer even more than the market effects of inflation reaching above 4% by the year end.