Friday, January 1, 2010

UK's 'big structural problems' could be cured in 2010, CBI chief says

By Graham Ruddick

Britain's "big structural problems" could be cured within the next parliament and unemployment could pass its peak this year if companies and politicians act decisively, according to the head of the UK's largest business group.

In his New Year message, Richard Lambert, director-general of the CBI, said 2010 would pose "exceptional challenges" for businesses.

The crisis in the banking sector is "far from resolved", he warned, while the fact the Government is yet to establish a credible plan to erode Britain's £178bn budget deficit is a "significant concern".

However, these issues can be overcome and a sustained economic recovery can be secured if the focus is put on policies aimed at driving long-term growth, such as education and skills, enterprise and innovation, competitive taxes and flexible labour markets, private sector investment, trade growth and open markets.

"If 2009 was a year when many companies were preoccupied with survival, 2010 may be a time of opportunities for those with the resources and foresight to grasp them," Mr Lambert said.

"The message is that the UK does indeed face big structural problems – but with sufficient determination they can be largely fixed within the lifetime of the next parliament."

The CBI leader, a former member of the Bank of England's Monetary Policy Committee, said business conditions were stabilising after a tumultuous year on the back of the collapse of Lehman Brothers. However, business leaders fear the UK economy, which is still in recession, is at risk of bumping along the bottom or even slipping into a double dip.

Mr Lambert said that, despite a rise in the capital ratios of banks, there could be "more aftershocks to come from the global credit crunch". He added: "The process of regulatory reform has hardly begun; and the transition to more robust funding structures is likely to be both slow and expensive. In the meantime, net lending to companies is still shrinking, and business investment remains very weak."

There are concerns among economists that a new crisis could emerge from under-pressure sovereign debts. Mr Lambert warned that delays in reducing the UK's £845bn of debt would increase the threat of uncompetitive long-term interest rates and a weak pound, and that the uncertainty was harming businesses.

The general election, set to happen in the first half of 2010, will be a key moment. Mr Lambert said it offered the potential for a "re-energised government" to act decisively on reducing the debt and to take a long-term view about the importance of the financial sector, rather than focusing on "political point scoring around bonuses".

However, Mr Lambert warned of "rumblings" in the public sector as spending is reigned in.

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