By Claire West

Don’t underestimate the real forces for stability in the UK economy – they mean we can hope for a soft economic landing even as the credit crunch enters a ‘period of maximum uncertainty’ – the CBI’s Director-General told a business audience on Friday.

Speaking at CBI Scotland’s annual lunch in Edinburgh, Richard Lambert said:

“The fact is that the further away you get from the City of London these days, the less doom-ridden the business outlook appears. City analysts are gloomy, and you can understand why. They worry that they might be about to lose their jobs.

“But out in the real economy, lots of businesses are still doing fine, thank you very much. And my impression is that Scotland is holding up at least as well as most. The way things look now, the Scottish economy — like that of the UK as a whole — is heading for a soft rather than a hard landing. And we mustn’t talk ourselves into something worse.”

Talking about efforts to ease the current credit crunch, he said that widening and lengthening the terms on which the Bank of England lends money to the banks is “fiendishly difficult to get right, but an important next step.”

And on banks’ plans for raising new capital, he said:

“It is clear that the global banking system is going to need fresh capital from shareholders in the coming months.

“This week came news that JPMorgan Chase, one of the strongest banks in the world, is raising new equity. Today comes speculation that the Royal Bank of Scotland is planning to do the same.

“It is right that these major banks should be taking a lead in raising new equity and rebuilding confidence.”

He continued:

“Those of us who have been around a while know that credit crunches come and go, and that well-run businesses should have little to worry about over time. But we haven’t had one for a long time, so this will be a new experience for lots of people — including our political leaders.

“And this is the period of maximum uncertainty. We have got a pretty good idea that the upward trend in the economy is changing. But we don’t have a good picture of how long or deep the slowdown is likely to be.”

He warned that with the Government on the back foot, it might be “tempted to see business both as a scapegoat for the economic slowdown, and as a way out of its fiscal tight spot. A source of extra tax revenues that could help paper over some of the immediate political difficulties.”