"The credit crunch is less a short, sharp shock and more a headwind that will remain for some time."
INFLATION BACK IN LINE
Inflation has become a key concern for the Bank of England, as commodity prices continue to soar, and the CBI said it also saw rising consumer price inflation (CPI) over the coming quarters, with the headline number above 3 percent - the current rate - until the end of the first quarter of 2009.
But after a peak at 3.8 percent in the third quarter, inflation is set to ease and will eventually undershoot rather than overshoot the Bank's 2 percent target, as price rises fail to feed through to wage inflation.
"One of the interesting points from conversations with members is how few signs of upward wage pressure there are out there," McCafferty said, adding employees were being held back by a weakening labour market from demanding higher wages.
"It suggests the risks of rising commodity and oil prices transmitting to secondary price inflation are limited at this stage."
Although markets are betting on a rise in interest rates as the Bank of England battles inflation, many economists argue the most likely direction will be down to stave off the risk of recession and a possible housing market crash.
The CBI said it saw at least two rate cuts, with a quarter-point cut at the "turn of the year" and a further move in the first months of 2009, as inflation begins to ease.
The CBI said export growth was expected to improve in 2009, helping offset weaker domestic demand and to improve net trade.
