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Rate hikes 'hit 2008 growth'

Britain's economy will only grow by 2.4 per cent in 2008, the Confederation of British Industry (CBI) has warned. Its latest quarterly economic forecast blames the prospect of another interest rate rise later this year on the dimmed expectations, despite the fact it predicts the Bank of England will reverse the hike by the end of 2007. This year's growth prediction remains unchanged at 2.8 per cent, with consumer spending reaching that pace from the CBI's 2.6 per cent forecast in March. Higher-than-expected inflationary pressures mean consumer price index (CPI) inflation will end the year at 2.2 per cent, only marginally above the two per cent target set by the Treasury. Unemployment will fall from 1.68 million in 2006 to 1.65 million in 2007 and is expected to fall to 1.6 million next year. The CBI has good news for the manufacturing sector, with strong international economic growth contributing to a positive balance of trade by 2008. Business investment will suffer, however, with growth falling to 3.7 per cent in 2008 from 5.9 per cent this year. CBI chief economic adviser Ian McCafferty said: "Recent oil price rises, unexpected and sharp increases in food costs, higher-than-expected import prices and businesses rebuilding profit margins after last year's squeeze have all added to inflationary pressures."Higher borrowing costs will make economic growth slightly weaker next year as consumer spending is reined in."

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