BRITAIN should escape a full-blown recession but will need at least three more interest rate cuts to help buoy growth, a leading think-tank said today.
Releasing its winter forecast report, the Ernst & Young Item Club warned that 2008 would be "a year of adjustment".
However, it argued that the risk of an outright domestic recession remained low given the strength of the world economy outside the
US and the recent easing in monetary policy.
With a quarter-point cut in borrowing costs increasingly likely next month, the Item Club forecast at least a further two such reductions before the end of the year.
Economists at the forecasting group also painted a bright picture for manufacturing, saying the sector was well placed to "pick up the baton from the consumer".
Businesses are set to benefit from a weaker exchange rate and the expansion of overseas markets.
Peter Spencer, chief economic advisor to the Item Club, said: "We are facing serious problems as a nation of borrowers, particularly the Chancellor. However, it is important to put these into perspective.
"The economy is fundamentally sound, the problems in the inter-bank market seem to be resolving themselves, employment is high and inflation under control."
But Spencer also warned that the multi-billion dollar investments currently being undertaken by sovereign wealth funds were "no cure-all panacea for the credit crunch".
He said: "The (funds] may have trillions at their disposal, but are the banks' shareholders (and the US government) going to continue to allow investment on these often punishing terms once this phase of the credit crunch passes?"
"Even if they do, that will push up the banks' cost of capital and ultimately corporate and individual borrowing costs."
• Manufacturing firms are well placed to weather potential economic storms this year, a leading business group predicted today.
The Engineering Employers Federation said the sector continued to enjoy a "renaissance" and there were signs that 2007 was its best in a decade. About a third of the 800 firms surveyed said China and India offered major business opportunities.
The full article contains 354 words and appears in The Scotsman newspaper.
