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Employers’ group CBI has released its quarterly forecast today, citing credit trouble, rising commodity prices and weak demand contributing to a fall in expected UK growth. The group doesn’t expect the conditions to last long though, with the start of a recovery expected next year.

The group predicts rising inflation is due to fall in the long term after a peak in Q3 of 2008. The forecast also points to the government being able to cut interest rates in Q2 and Q4 this year, with a further reduction possible at the beginning of 2009.

However, the report was far from gloomy - CBI’s director-general, Richard Lambert, said: “Outside the financial and property sectors the overall mood of business is nothing like as gloomy as you might guess from reading today's headlines.

“While there are signs of a high street slowdown and some firms say it's getting harder to raise bank finance, around the country many still report quite positive conditions.

“So it is vitally important to keep the story in perspective. Although painful, write-offs by British banks represent a tiny fraction of their capital. After a few good years, the UK corporate balance sheet is in good shape. Our flexible labour market is a real force for stability and our best bet is that our economy will continue to show modest growth this year and next, before starting a gradual recovery.”

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