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LONDON, Dec 5 (Reuters) – Britain’s economy is on course to contract 0.4% next year as inflation remains high and companies hold back on investment, with bleak implications for long-term growth, the Confederation of Business Industry forecast on Monday.
CBI director-general Tony Danker said, “Britain is in stagflation, with stagnant inflation, negative growth, falling productivity and business investment. Firms see potential growth opportunities but…headwinds are holding back investment in 2023.”
The CBI’s forecast marks a sharp downgrade from its last forecast in June, when it forecast 1.0% growth for 2023, and it does not expect gross domestic product (GDP) to return to its pre-COVID level until mid-2024.
Britain has been hit hard by rising natural gas prices following Russia’s invasion of Ukraine, as well as an incomplete labor market recovery after the Covid-19 pandemic and continued weak investment and productivity.
Unemployment will peak at 5.0% in late 2023 and early 2024, up from 3.6% currently, the CBI said.
British inflation hit a 41-year high of 11.1% in October, hitting consumer demand sharply, and the CBI predicts it will be slow to fall, averaging 6.7% next year and 2.9% in 2024.
The CBI’s GDP forecast is less gloomy than the British government’s Office for Budget Responsibility – which last month forecast a 1.4% decline for 2023.
But the CBI’s forecast is in line with the Organization for Economic Co-operation and Development (OECD), which expects Britain to be Europe’s worst-performing economy bar Russia next year.
The CBI forecasts business investment at the end of 2024 to be 9% below pre-pandemic levels and output per worker to be 2% below.
To counter this, the CBI called on the government to make Britain’s post-Brexit work visa system more flexible, end what it sees as an effective ban on building onshore wind turbines and provide more tax incentives for investment.
“If action is not taken we will see a lost decade of development. GDP is a simple multiplier of two factors: people and their productivity. But we don’t have the people we need, nor the productivity,” Denker said.
Reporting by David Milliken; Editing by Diane Craft
Our Standards: The Thomson Reuters Trust Principles.
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