Household spending is now forecast to grow 3.2 per cent this year compared with a February forecast of 2.5 per cent. Sudhir Junankar, associate director of economics at the CBI, said the optimism was based on its forecast for a “turn-up” in the health of the world economy.”It will be a mild recovery,” he said. “We expect relatively sluggish growth based on the recovery in the world economy and the pound is expected to come down a little.”However, the CBI warned if neither a rebound nor depreciation took place, then the manufacturing outlook would be “worse”. CBI economist Doug Godden said: “This is a reasonable central view in line with our other forecasts.”Analysts were surprised by the collapse in optimism, especially as the CBI survey had been bullish for the previous two months.Danny Gabay, UK economist at JP Morgan, said the survey had been carried out over a period that included a surprise interest rate cut, confirmation of a manufacturing recession, and a “fever pitch” debate in the media about an imminent UK recession. “In other words, rather than leading the official data this result may reflect a reaction to it,” he said.The CBI used the survey to appeal for another reduction in rates. Digby Jones, the CBI’s director-general, said: “With inflation set to stay below the Government’s own target, there is no obstacle to a cut.” The CBI expects inflation to be at 2 per cent by the end of this year and 2.3 per cent in 2002.

The target is 2.5 per cent and the current rate 2.2 per cent.It has pencilled in a fall in the pound against the euro to 68p from 63p yesterday. Against the German mark this equates to a fall to DM2.87 from DM3.10.According to an unsourced newspaper report yesterday, Prime Minister Tony Blair has put ministers, business groups and trades unions on alert for a referendum on the euro.Asked if the UK could feasibly join at the current exchange rate, Mr Godden said: “We would not be happy. We would see DM2.90 as an absolute maximum.” The pound fell almost 1 per cent against the dollar after the CBI survey.. SVB Holdings, the insurance group focused on Lloyd’s of London syndicates, saw its shares plunge 43 per cent yesterday after it forecast big losses due to the Allison tropical storm and a Sri Lankan plane blown up by terrorists.

SVB Holdings, the insurance group focused on Lloyd’s of London syndicates, saw its shares plunge 43 per cent yesterday after it forecast big losses due to the Allison tropical storm and a Sri Lankan plane blown up by terrorists.
Annual losses would touch £33m, SVB said, prompting its shares to fall by 66.5p to 89.5p, valuing the group at £175m.Aside from the estimated £5m impact of tropical storm Allison on SVB’s property syndicates, the company was stung by £2.5m of costs for a sunken oil rig owned by Petrobas and £1.5m relating to the Sri Lankan plane. The disasters were compounded by a general increase in compensation claims in the US.Earlier this week, the Association of Lloyd’s Names lambasted corporate investors in Lloyd’s syndicates for investing recklessly. Individual “names” suffered much lower losses.Rupert Villers, SVB’s chief executive, said he expected to see profits return in 2002. “The insurance market is now experiencing greatly improved underwriting conditions, which provides us with opportunities on which we intend to capitalise. We shall continue to insist upon higher rates,” Mr Villers said.Morgan Stanley Dean Witter, the US investment bank, forecast a strong upswing in reinsurance rates over the coming years..