The current forecast marks a downgrade from the previous prediction with the group saying that the UK economy is suffering from ‘Stagflation’, a combination of increasing prices or inflation and economic stagnation
The UK economy faces a decade of lost growth if necessary action is not taken on investment tax reliefs and shrinking workforce, warns the Confederation of British Industry. CBI expects the economy to shrink by 0.4% in the next year, citing the lack of human workforce and productivity required to stabilize the economy.
In the latest forecast, CBI has warned that the economy has already fallen into a ‘short and shallow’ recession, leaving productivity below 2% of the pre-pandemic trend at the end of 2024 and business investment 9% below the 2019 stages. The current forecast marks a downgrade from the previous forecast with the group saying that the UK is suffering from ‘Stagflation’, a combination of increasing prices or inflation and economic stagnation, reports BBC.
Tony Danker, Director of the Confederation of the British Industry states that Britain is withdrawing from the priorities stated by Prime minister Rishi Sunak. The country is now focusing on innovation and investment rather than focusing on any agenda for growth, states Tony Danker.
CBI, which represents 190,000 UK businesses also stated that Rishi Sunak and Chancellor Jeremy Hunt have stabilized the market and economy to an extent after the turmoil caused by the mini-budget under Liz Truss’s governance. Since the country is now in a recession period, this would be the time for the government to take necessary steps to boost economic growth and productivity in the long term. “Firms see potential growth opportunities but a lack of ‘reasons to believe are causing them to pause investing in 2023. Government can change this. We will see a lost decade of growth if action isn’t taken,” states Mr. Danker.
The forecast of the economic shrinkage in the coming year shows the cost of living crisis invading household spending and increasing interest rates to 4%. GDP recovers in 2024, having a growth of 1.6%. “Britain fails to invest as much as it should compared to our G-7 competitors in capital, people, and ideas, and it was (Sunak’s) view that government needed to play a role in changing that,” Danker said.
Unemployment in the CBI’s outlook increases by 500,000 reaching 5% in the coming year from the current 3.6%. while the inflation which is near 11% tightens the household income throughout 2023, remaining above the target at 2% in 2024. The CBI’s grim estimates follow predictions for an even deeper recession defined by the Bank of England, the Office for Budget Responsibility, and the Organization for Economic Cooperation and Development.
A Slow-Moving Economy
The CBI anticipates the UK to have the second-worst recession of major economies. It is the only country in G7 to growth have rate and economic output below the pre-pandemic levels. The continuing weaker productivity and investment patterns do not do much for the economy and its potential growth. Through a massive tax break on investment, the government can improve the business sector of the country and thus boost production. The corporation tax super deduction will expire in the month of April 2023 and will increase by six percentage points reaching 25%.
The government had announced that the country is already in recession with global factors partly to blame as the Russia-Ukraine war has caused the food and energy prices to shoot up along with the effects of Covid. To bring the UK economy to balance, the implementation of a proper plan for long-term growth is essential for boosting productivity and labor supply.