A difficult year but with well-managed financial risk

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In his New Year message, the CBI’s director-general, Richard Lambert said that he expects 2008 to be a “difficult year” for the British economy, but it is important not to exaggerate the risks. With the UK exposed to twin shocks from rising commodity prices and the continuing credit crunch, the most likely outcome is a “soft landing” as the economy slows down.
The customers will be cushioned from the economic crisis by a substantial equity they have in their homes – around 60% of mortgage borrowers have more than £100,000 of equity in their homes – and the fact that the Bank of England has been “doing a good job of managing inflation expectations”.
Commenting on the bigger economic picture, Mr Lambert said that “we may be entering a new phase” in the structure of the global economy, with a “bumpier ride in the years to come” a real possibility. He reflects that “the global economic balance of power is shifting East” to China and India, who have driven growth as the US economy has slowed, and that alongside this “we appear to have moved into an era of high energy prices, and one where investment decisions will be dictated in part by the price of carbon”.

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