Breaking finance and business news, tax information, jobs and more for finance directors and senior finance professionals.

As for what the rest of the year holds, Gifford says it is difficult to predict with any certainty exactly what the economy will do amidst the current climate of uncertainty, but he cites the following four issues as key drivers of where the UK's economy will head.

Declining levels of investment 

The full ferocity of the credit crunch is expected to show its claws as 2008 progresses as the uncertainty about the size and location of losses begins to unfold.

There is an expectation of lower bank lending and decreases in M&A and market activity which could potentially lead to declining levels of investment. Potential decreases in individuals being able to obtain credit also contribute to an economic slowdown and a feared recession.

The impact of the tightening lending regime by banks is beginning to impact on corporate bank borrowing. Credit conditions for firms are tightening which will impact on investment.

Although profitability and liquidity outside the financial sector is high, mitigating some of the impacts, the investment outlook is weak with UK investment growth of only 2 per cent expected in 2008.

Personal debt 

Personal debt in Britain has become an increasing burden in 2007 and is likely to heap further pressure on families and households through 2008.

Britain continues to hold the highest amount of personal debt of any European country, and summer 2007 saw the total borrowed in the UK exceed Britain's GDP for the first time.

The problem is predominately secured debt such as mortgages which has been getting larger due to the rising gap between house prices and incomes and increases in interest rates over the past few years (rising from 3.5 per cent in Summer 2003 to 5.75 by Autumn 2007).

Nearly two million households at the end of 2007 who were moving from low interest fixed term mortgages are now expected to get hit by higher variable mortgage rates.

This is leaving people more sensitively exposed to any economic changes and may well lead to decreased consumer spending and an increase in the volume of house repossessions.

This will have a knock-on effect to tax receipts, but it is expected that this will become more apparent in 2009.

Rising energy prices 

Following the Bank of England's fourth quarterly bulletin in 2007 it was discussed that rising energy prices will remain an important influence on any future interest rate decisions.

Rising oil prices from $55 a barrel in January 2007 to almost $109 a barrel at Tuesday 11 March 2008, are having a direct impact on inflation and are putting pressure on both business and consumers.

Following tougher legislation, supply side pressures and 'the carbon footprint', energy companies have been significantly increasing their prices.

This is impacting on household disposable income which is putting downside pressure on consumer demand and has pushed an estimated 4.5 million consumers into fuel poverty according to web site uSwitch.com.

Government concern at rising energy prices coupled with increasing profits in the sector may be a factor behind the Ofgem probe of energy markets.

A budget decision to impose a windfall tax on energy companies could have important implications for future prices and investment in the sector.

Strong employment and wealth at record levels may, however, well give households the confidence to maintain their spending levels - for the time being.

Related articles

• No clarity yet on foreign profits
• CBI boss gives stark warning to Darling
• ICAEW warns of ill-thought through policy proposals
• UK economy not in meltdown, says PwC
• Tax regime threatens to topple London
• KPMG urges business-friendly, green budget
• PKF praises draft Entrepreneurs’ relief
• CIOT critical of non-dom proposals

Related links

• HM Treasury
• Grant Thornton