ANY QUOTES MUST BE ATTRIBUTED TO SKY NEWS, MURNAGHAN

DERMOT MURNAGHAN: As the crisis in the eurozone rumbles on and the economic recovery is stalling, 2012 of course looks set to be another difficult year for UK businesses. Retailers tomorrow are expected to reveal yet another disappointing set of sales figures in some cases, again raising fresh doubts about the financial health of the UK high street. Well Director General of the CBI, John Cridland, joins me now from Bedfordshire, a very good morning to you Mr Cridland. You warned in your new year message about the dangers ahead for the UK economy, what do you think – leaving the eurozone apart, we’ll get on to that in a moment – what do you think they are?

JOHN CRIDLAND: I think for the economy as a whole there is the basis for underlying growth. The service sector, financial services, the business services sector, is actually doing quite well. Exporters have been hit by the eurozone problem but if we could get the eurozone problem resolved, I think the underlying strength of the economy could bounce back and even on the high street we’ve seen a mixed picture. Christmas sales were quite good, maybe new year sales will be disappointing – we’ll know shortly, John Lewis has done better but some of the other shops on the high street have suffered, so it’s a mixed picture but by no means a depressed one.

DERMOT MURNAGHAN: You also talked about rebalancing, we’ve talked about it in the past of course, rebalancing our economy in terms of government and personal debt, but doesn’t that inevitably mean a period of contraction as people and businesses and of course the government stop spending, there will be a lull in activity.

JOHN CRIDLAND: Well if you’re going to have less spending from government and from individuals you need more spending from business and the way to achieve that is to get business investment, ensuring that we export more than we import and that’s perfectly achievable. We did that in the 1990s, we’ve lost the exporting habit, we import too much but there is a sound basis for growth in the British economy based on business investment and business exports which would replace the unsustainable model of debt driven consumer spending and the government spending money that it is having to borrow in the markets.

DERMOT MURNAGHAN: But it hasn’t been happening so far has it, that investment on a large scale by the private sector to replace government investment, so what will tempt them out of their shells given the size of the cash pile some companies are sitting on?

JOHN CRIDLAND: Well as you say, Dermot, the cash pile that businesses are sitting on is quite significant, 60 billion more than it was a year ago. Business doesn’t have the confidence to invest and when you say it’s not happening, I agree with you, there were signs that it was beginning to happen this time last year but then as 2011 went on and the eurozone crisis closed in, business lost the confidence to invest so we need to do whatever we can to resolve the eurozone crisis. Within Britain itself what can we do? Well the most important thing I think we need to do is to get the housing market going because there are people, even citizens, with money in the bank who could buy houses but at the moment the housing market is stuck and we’ve come up with some good ideas for tackling that, particularly around bridging the gap between the loan and the value of the property and to do that by mortgage indemnities.

DERMOT MURNAGHAN: Do you have any qualms about the speed, the debt, the pace, the intensity of the deficit reduction programme given what’s happening to the economy and given what’s happened to other economies who have had austerity imposed upon them? The Greeks of course are perennially in intensive care, the Irish have come off the boil and the only country that seems to be growing in the West at the moment is the United States who have of course ignored their deficits and brought in tax cuts and a huge amount of fiscal stimulus.

JOHN CRIDLAND: No, I don’t have any doubts about the need for austerity. I have every sympathy for those who are suffering pain as a result and of course temporarily it is reducing the growth rate but in the long term it will increase the growth rate and to any deficit sceptic I say the following, we have Mediterranean levels of government deficit on their spending but we have German government levels of borrowing. How come we can borrow government levels of 2% when we’ve got Mediterranean levels of government spending deficit? The answer is because the international money markets have confidence in our ability to bring the deficit down. If we took our foot off that particular pedal, we could be in a much more difficult situation with our government borrowing. So it’s necessary pain, it’s a bit like detoxing – it’s not very pleasant but it is the way to feel healthier at the end of the road.

DERMOT MURNAGHAN: Okay Mr Cridland. Thank you very much indeed John Cridland there, the boss of the CBI, keeping faith with the deficit reduction strategy.