One year after the first shock of the credit crunch, this seems a good moment to reflect on current business conditions in the UK, and on the policies best suited to get us through these troubled times. The short term pressures are intense. But it’s vital that Government and business do everything possible to ensure that the UK is well positioned for the recovery that will emerge once we are through this stage of the business cycle.
The CBI, along with most other forecasters, has been consistently overoptimistic about the economic outlook over the past 12 months. There have been two main explanations.
The first is that the surge in price inflation – mainly in energy and food – took us by surprise. In July last year, inflation as measured by the Consumer Price Index was running at 1.9 per cent, and the Bank of England expected that it would remain around that level – close to its target – well into 2010. Fast forward 12 months, and it now seems likely that CPI inflation will peak somewhere around 5 per cent later this year
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