UK businesses face a tough year in 2008 due to the global credit crunch and rising food and energy prices, the Confederation of British Industry has warned.

The group's director general, Richard Lambert, also claimed central banks would be restricted in their ability to reduce interest rates by the threat of inflation caused by high food and energy costs.

The fact that the financial sector accounts for almost a tenth of the economy meant the impact of the credit crunch would inevitably spread to the wider economy, he added.

But the employers' body predicted that the UK would have a soft landing from the recent years of steady economic growth rather than falling into recession due to the recent weakness in the pound and the country's flexible labour market.