Bob Bailey, Midlands chair of R3, the Association of Business Recovery Professionals, and partner at Baker Tilly, gives his economic predictions for 2008
MAKING economic predictions is never an exact science. The first of the possible paths which we may travel during the next 12 months involves the dissipation of the current credit crisis.

Despite the doom and gloom commentary of last year, there could well be a move towards a greater credit equilibrium in 2008. This would see confidence returning to the American housing market with a continued, but not drastic, slowing of the UK equivalent.

Current moves by the Bank of England and four other powerful central banks to inject £50BN into global money markets will ease the mounting strain which threatens to tip the world's leading economies into recession.

We may also see interest rates start to fall as well as a drop in oil prices, similar to last winter. At the same time, employment rates may grow in line with the UK's 15 year economic expansion.

Remember, the last time there was a big international financial crisis, in 1998, the UK surprised most by growing more strongly than the year before.

But there is another possible path and this hinges on a big bank failing to meet its financial obligations. This would be the act that would turn the financial markets on their heads, transferring the credit crisis into a full-blown credit crunch. The knock-on effects would see millions of American homes repossessed and a prolonged 1930s style recession on the other side of the Atlantic.

Naturally, the effects would be felt over here and would include rises in oil prices, pushed on by hedge funds betting on higher prices. The Bank of England would increase interest rates to manage the fear of rising inflation while unemployment levels would start to rise.

The fact is that, as a nation, we have higher debt levels than at any time in living history, which makes us particularly vulnerable to any domestic or overseas downturn.

While these scenarios are both possible, they are at two ends of an extreme scale. What is more likely, and far more predictable, is that the guys in the collection departments are likely to be busy.

New legislation, due this year, is likely to encourage banks to shift bad loans off their books more quickly because of the requirement to hold more capital against risky assets which may default.

I expect rejected applications for credit will continue to increase and non-prime remortgages will be more difficult to obtain. This will advance the volume of consumers seeking debt relief.

The debt collection industry in the UK has grown from £8.6BN to £22.7BN in the last four years (up by 8% since September 2006), and is likely to see further growth in 2008.

The IVA market is maturing quickly and there will be further consolidation in the industry with an increased understanding in 2008 following agreed protocols between banks and insolvency practitioner firms.

I expect the market to slow for a while. The credit crunch will see more individuals reverting to insolvency in 2008 as servicing debt with more credit becomes unmanageable, and secured loans less available. However, the fact that the world's central banks are offering billions to fend off recession could make 2008 a much more positive year than it might otherwise have been.