Osborne urged to be bold in bid to kick-start UK economy

BUSINESS groups yesterday urged Chancellor George Osborne to take bold steps to breathe new life into the ailing British economy as he prepares to unveil his autumn statement against a worsening outlook.

Research from the CBI and British Chambers of Commerce (BCC) yesterday added to the mountain of evidence pointing towards another period of contraction.

John Cridland, the CBI director-general, said the Chancellor needs to deliver a “plan A plus”. He said: “The CBI wants to unlock private-sector investment to kick-start growth. We want to get shovels in the ground, by using road-tolling schemes to attract private investment, and bringing forward planned road projects to improve congestion and create new jobs.” The BCC yesterday slashed its growth expectations for this year to 0.9 per cent from 1.1 per cent. It expects the economy to expand in 2012 by just 0.8 per cent compared to a previous forecast of 2.1 per cent growth.

The Organisation for Economic Cooperation and Development (OECD) also downgraded its forecasts, warning that the economy is likely to contract in the final quarter of this year and the first quarter of next year – leading to a modest recession.

The Office for Budget Responsibility is today expected to admit that its own growth estimates for both this year and next were over-optimistic. Despite the torrent of bad news, markets surged on rumours that the International Monetary Fund (IMF) was preparing to pour €600 billion (£515 million) into the Italian economy.

Although this was denied by the IMF, Mike Lenhoff, chief strategist at Brewin Dolphin, said equity markets were “oversold” and are therefore likely to experience a “decent rebound on any catalyst”. The FTSE closed up 148 points at 5,313.

The government received some encouragement from the powerful insurance industry, which gave its support to a plan that would allow pension funds and insurers to invest in major building works.

The Chancellor will today announce full details of the scheme that is likely to see pension and insurance funds provide up to two thirds of a £30bn investment in UK infrastructure projects such as the building of roads, railways and high speed broadband networks.

Otto Thoresen, director general of the Association of British Insurers (ABI), said the industry had a long-standing interest in supporting public works, which it is hoped, will stimulate the battered economy.

“We are encouraged that the government is determined to attract more investment into UK infrastructure projects. The bond markets are a huge untapped source of finance and insurers have long been keen to find a way to channel more of the investments they manage into UK projects to help the economy back to growth,” he said.

The City has also expressed support for an expected £40bn credit-easing, or bond buying, initiative to reduce the cost of finance for small firms.

However, it is feared that Britain is fast losing the fight against a double dip and members of the Bank of England’s monetary policy committee indicated to MPs yesterday that it was a matter of when, not if, more money would be pumped into the economy via quantitative easing.

The latest distributive trades survey from the CBI showed that high street sales volumes continued a downward slide in November and retailers are not expecting an improvement next month. Retailers are also cutting jobs at the fastest rate for two years.