UK Economic Outlook transcript

Within the latest UK economic outlook, we’re obviously focussing on two big forces that are affecting the UK economy, one is the credit crunch which is now hitting the UK housing market and the other is this big rise in oil and food prices. And those two things are kind of pulling the economy in opposite directions if you like. The credit crunch is reducing growth, but the other things are pushing up inflation and so that’s posing a real kind of dilemma for the bank of England, on the one hand they want to reduce interest rates to support growth, on the other hand they want to increase interest rates to control inflation so in practice it probably means that for the moment interest rates are pretty much on hold and are certainly not going to be cut, maybe even going to rise later this year. So that is a problem for the economy and it’s adding to the squeeze on consumers because not only are they finding it more difficult to get a mortgage or their house is going down in value, they’re also having to pay more for their energy bills, their petrol, their food and so we really think that consumer spending that it’s going to slow down quite sharply perhaps only to about half a percent next year.

The UK economy is facing huge challenges at the moment because of these global pressures just like all of the other economies in the World, it’s not just specific to us. We are not as pessimistic as some people, some people have already begun to say there will be a recession and that’s certainly a risk, but I think we’re more saying that there will be a slowdown, growth this year will maybe slow to about one and a half percent maybe even to somewhere closer to one percent this year. But we are not saying that there will definitely be a recession but certainly businesses would be wise to take account of this in their plans and maybe to stress test their business plans against that possibility looking forward so that they are at least prepared for the worst if it does come about.

So in this issue of the UK economic outlook, we’ve also taken a look at the bigger picture of global warming and carbon emissions and we’ve updated some projections we did years ago as to global carbon emissions out to 2050, and in some ways it’s quite a disturbing picture, if we do nothing and just continue with the current business and economic model, we are likely to see a doubling of carbon emissions globally by that period with China and India growing very strongly and effects like that. That could have disastrous effects on the climate in terms of global warming, sea levels rising and so on in the longer terms.

So what should governments do about it, well we’re actually recommending a fairly radical program that governments who are meeting this month for the G8 summit could consider, one is to greatly improve energy efficiency right across the economy, second is to move more into renewable energy sources and third is carbon capturing storage, actually capturing some of the carbons that comes out of power stations. And we think a combination of these things we think are both technologically feasible and economically affordable, as long as you start early enough and make progress on it at a global level. So I think there is an agenda there and we think that by doing that you could actually half global carbon emissions by 2050, and for the UK actually we need the target to be even more ambitious, maybe a cut of about seventy or eighty percent by 2050, so hopefully that’s something that governments both in the UK and elsewhere can sign up to.