According to the Confederation of Business Industry (CBI), the UK is set for a ‘difficult year’ in 2008, but is more likely to see a soft landing than a severe downturn.

In a New Year message, Richard Lambert, director general of the CBI, said the UK economy ‘appears to have started a cyclical slowdown of uncertain depth and duration’.

Lambert blamed the uncertain outlook on the ‘credit crunch’ as well as on rapid price increases of energy, food and other commodities. Domestically, meanwhile, UK house prices have risen rapidly over the past decade fuelled by ‘ever rising volumes of customer debt’, and a sharp reversal ‘would have serious consequences’. According to Lambert, the most likely outcome for the UK is that the coming 12 months will bring a soft landing, after two years of above-average growth.

“If we allow ourselves to get carried away by today’s gloomy headlines, we could talk ourselves into something much worse”, he said.

The CBI forecasts UK GDP growth of around 2% in 2008 and 2009, below both the long term trend and the UK’s recent performance but not ‘anything like a disaster’.