MORE than a decade of low inflation, low interest rates and high growth have largely kept the economy out of the headlines.

Not anymore. Successive interest rate rises to check inflation at home and the dramatic re-pricing of risk and the seizing up of global credit markets have put it sharply back in focus.

So how will the economy shape up going forward, particularly in the Thames Valley?

Out there in the real world, business conditions for the time being remain sound. Growth in the UK economy remains brisk, with strong demand in the construction and manufacturing sectors, and consumer spending surprisingly resilient in the face of squeezes to real incomes.

Export orders and investment look firm, and underlying profitability in the business sector has strengthened.

What impact will the recent financial market turmoil have on all this?

The government faces some important choices. Either it can underwrite bank savings, which will mean more regulation, kill competition and punish innovation. Or it can return to a world where market forces operate.

The second route is vastly more preferable.

The Chancellor has moved swiftly to amend the deposit protection scheme in an attempt to bolster consumer confidence.

But we need to make sure that any new scheme will not provide perverse incentives to savers to invest in inappropriate areas.

The most important lesson for the future is that we need to ensure we know beyond doubt who is in charge when trouble hits, and that person must have the power to do whatever is necessary to nail down the problem, before it gets out of hand.

As for the economic outlook, much depends on the duration of the upheaval in the credit market.

The UK economy, though, is in good shape to ride out the recent financial storms. British businesses have been growing strongly this year, and the fundamentals of the economy are sound.

So 2008 could see a slight slowdown and we have trimmed our growth forecast down to 2.2 per cent.

Much will depend on confidence, and the actions of the Bank and the Chancellor will play a big part in this.

There are many lessons to be learned from the handling of the recent financial turbulence.

But, for now, a financial crisis seems unlikely to spill over into an economic one.

Contact Steve Rankin at CBI on 01252 360420