Firms are not investing, prices are rising and the economy is contracting – a dire economic picture that is set to last into next year, the UK’s biggest business group has warned. The UK could even face a decade of lost economic growth if action is not taken, the Confederation of British Industry (CBI) boss Tony Danker said. “We don’t have people we need, nor the productivity,” said Mr Danker.
The CBI expects the economy to contract by 0.4% next year. It marks a downgrade from its previous forecast, with the lobby group saying the UK is suffering from “stagflation” – a combination of stagnation and soaring prices. The CBI, which represents 190,000 UK businesses, said Prime Minister Rishi Sunak and
had succeeded in stabilising the markets in the wake of Liz Truss’s mini-budget. But it said that the UK is in recession and that action is now necessary to boost productivity and economic growth in the long-term. It urged the government to address worker shortages and find ways to “unlock” business investment.
“There is no time to waste… We cannot afford to have another decade where both are stagnant,” Mr Danker added. At the group’s conference last month, he called on politicians to be “practical” about using immigration to solve worker shortages and boost economic growth.
‘No New Year cheer’
The government has said the country is already in recession, which is defined as when an economy shrinks for two three-month periods in a row. It is a sign an economy is performing badly, with companies often making less money and unemployment rising.
Global factors are partly to blame, with energy and food prices soaring this year due to the war in Ukraine and Covid. But the UK also faces significant labour supply challenges due to it being more difficult for small businesses to trade with Europe or recruit workers due to Brexit, which ended freedom of movement for EU citizens coming to the UK and vice versa. There will be “no New Year cheer for the economy”, the CBI added, with its latest forecast suggesting that business investment is set to be 9% below pre-pandemic levels by the end of 2024.
There will also be a year-long fall in consumer spending as the squeeze on household budgets continues, it said. While inflation, which measures how the cost of living increases over time, will have peaked, it said that prices will still be rising at a pace “significantly above” the Bank of England’s 2% target. A spokesman for the Treasury said: “We have been honest that there are tough times ahead for the UK economy in the face of strong global headwinds, and we are not alone in that challenge.” He also pointed towards measures announced in the recent Autumn Statement, such as setting the Annual Investment Allowance at £1m from 1 April 2023, encouraging firms to invest in plants and machinery, for example.
