29/12/2008 - Experts warn of economic set-back
An economic think-tank has warned that Britain's economy could be set back five years thanks to the biggest slump in output since the aftermath of the Second World War.
As bank lending continues to stagnate, the UK economy could shrink by as much as 2.9% next year, the Centre for Economics and Business Research (CEBR) has predicted.
Ben Read, the CEBR's managing economist, said: "Our emerging central scenario suggests a contraction of 2.9%, driven by a steep fall in business investment of 20% due to continued restrictions on bank lending, as well as firms slashing budgets in order to stay afloat."
The prediction far exceeds official Treasury forecasts that the economy will shrink by between 0.75% and 1.25% next year, with the UK returning to growth in the second half of 2009.
CEBR's economists are warning about the danger of firms cutting investment at the same time as consumers rein in spending and save more.
"If this... scenario occurs, a contraction of between 5% and 10% could be on the cards, setting the UK economy back by five years," Mr Read added.
Copyright © Press Association 2008
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