UKEconomy Set to Re-balance in 2004, says IoD

The UK economy willre-balance in 2004 with a reduction in the growth of household consumption andan increase in the growth rate of business investment, business leaders claimedtoday.

In a new report, Re-balancing the UK economy, TheInstitute of Directors (IoD) forecasts that household consumption will rise by1.8% and business investment by 3.5% in 2004.

Chief Economist atthe IoD, Graeme Leach, said:

With total householddebt heading towards 1 trillion there are obvious concerns as to thedestabilising effect this might have, with the risk of a pronounced boom-bustin the economic cycle over the 2004-05 period."

The IoD alsoforecasts that interest rates are likely to peak at no more than 4.5% thisyear.

The IoD argues thatmodest interest rate rises will bring about a re-balancing of the economybecause contrary to received wisdom total debt servicing costs, includinginterest and capital repayments, are already very high by historic standards.

Graeme Leach, said:

"The IoDs newanalysis of consumer behaviour is important, because it highlights two things.First, how households may have become more sensitive to interest rate changesover recent years. Second, how increased sensitivity also means that householdspending can be slowed without a crash.

Ends 13.1.04 No.225

Contact Points:

Richard Taylor, PressOfficer, tel. 020 7451 3264

Mobile and out of hours. 07721 734886

David Marshall,Director of Public Affairs, tel: 020 7451 3263

mobile and outof hours: 07764 883420

Email. press@iod.com

Web. www.iod.com

Notesto Editors

1. Copies of Re-balancing the UK economy can be downloaded from www.iod.com/pressoffice or from the IoD Press Office on 020 74513264 press@iod.com

2. The Institute ofDirectors is a non-party political independent organisation with around 55,000members. In addition to its wide range of business services, the IoD providesan effective voice to represent the interests of its members to government andkey opinion-formers. It also brings the experience of business leaders to bearon the conduct of public affairs