A DIFFICULT start to trading in 2008 resulted in half of the companies listed in the East Lancashire index seeing the value of their shares fall.

And financial experts have warned of tough times ahead as fears of a US recession loom over the UK economy.

Tony Hedley, of Blackburn stock-brokers Hedley and Co, believes the stock market will remain volatile.

He said: "The market has quietened down slightly but it is still going to be a difficult year for a lot of companies.

"The problem we have got is that reducing interest rates could stoke up inflation.

"The Bank of England is loathe to reduce interest rates although there is pressure to do so because everybody nearly always follows America's lead."

BAE Systems, whose Samlesbury site is one of the area's largest employers, has major contracts with the US Air Force but is bullish that any slowdown will not hit UK jobs.

Greg Caires, based at BAE Systems in Arlington, Virginia, said he expected US defence spending to remain stable.

He said: "We are all keeping our eyes on the global market but the defence budget is projected to remain robust for the foreseeable future.

"The US defence budget is seen as counter-cyclical so when commercial markets slow the defence side increases because the Government can spend money and get goods in return."

The company has recently taken a major US Air Force order for the F-35 Lightning II (pictured), components of which we built at Samlesbury.

Amongst smaller traders, however, concern remains over the impact any downturn in trading could have on East Lancashire consumer spending.

Paula Riley, president of Burnley Chamber of Trade, said: "At this time of year it is quiet because people are recovering from Christmas.

"We are now looking to Easter and we are just getting on with it."

Stephen Robinson, director of Pierce Corporate Finance, part of Blackburn-based chartered accountancy and business advisory group Pierce, believes the outlook for East Lancashire is still uncertain.

He added: "The performance and outlook for the rest of the local economy is highly dependent on continued consumer spending which appears to be slowing.

"In the UK I can see a 0.25 per cent rate cut in February and at least one more 0.25 per cent cut before the end of 2008, but given the inflationary pressures in the UK it is difficult to see large cuts in interest rates beyond the 0.5 per cent level this year."