CBI cuts economic growth forecast

By Chloe Fussell

LONDON (Reuters) - Global credit turmoil will hurt economic growth well into next year, the Confederation of British Industry said on Tuesday as it cut its 2008 and 2009 growth forecasts.

"This is as much as 2009 story as it is one for 2008," said Ian McCafferty, the CBI's chief economic advisor.

"It's a much more prolonged headwind we will be driving into, a headwind rather than a short, sharp shock. The second-round effects will be felt for some time after the immediate problems are solved."

The top business lobby group said market turmoil, rising commodity prices and weaker demand had led it to cut its growth forecast by 0.2 percentage points to 1.8 percent for this year, against government forecasts for 1.75-2.25 percent growth.

The forecast for next year paints an even more pessimistic picture, at a downwardly-revised 1.7 percent -- significantly lower than Chancellor Alistair Darling's current range of 2.25 to 2.75 percent.

The CBI expects increasing consumer price inflation, revising its estimates upwards to a peak of 3.2 percent in the third quarter of this year.

Official figures released last week showed CPI hit a nine-month high of 2.5 percent in February, well above the Bank of England's two percent target.

The Bank faces the tough task of balancing these rising inflationary pressures while trying to encourage growth in a slowing economy.