The UK is already in a recession that is expected to last until next year, according to the UK’s largest business group.
The Confederation of British Industry (CBI) has downgraded its economic growth outlook in a stormy environment of falling business investment, rising price expectations, still high interest rates and labor shortages.
The economy is expected to contract by 0.4% next year, the CBI predicts, a significant downward revision from the group’s last forecast of 1% growth for 2023. In contrast, the economy is expected to grow by 4.5% this year.
Due to the contraction, consumer spending is expected to decline over the year as economic pressures increase.
The recession will be “relatively mild”, fueled by high inflation which the CBI says has already peaked and will level out next year.
The CBI announcement is the latest economic indicator to show that the UK should do worse than the vast majority of developed economies. Only Germany’s economic output is expected to fall at a faster rate, with the German economy expected to contract by 0.6%.
These negative economic impacts will continue to affect economic performance for years to come, despite a 1.6% recovery in economic growth in 2024, the CBI warned.
Output per worker must decline from its already low level, the CBI said. He expects productivity to remain 2% below its ‘already low’ levelCOVID-19[feminine] trend, and 19% below the pre-financial crisis level.
Similarly, business investment is expected to remain 9% below pre-pandemic levels in 2024, despite some economic recovery expected to occur by then.
The CBI said investment can be increased by the government updating the national planning policy framework and removing, what it describes as, the de facto ban on terrestrial wind.
Price hikes are a key causal factor in much of the economic woes. While it is said that inflation has peaked last October at 11.1%, the CBI said it would remain “significantly above” the bank of englandtarget of 2% throughout next year, falling to 3.9% by the end of the year.
Although the figure represents a decline, the risks of further inflation “remain high” and depend on how global price pressures evolve, the organization added.
Companies are also facing difficulties due to a persistent shortage of workers, with the CBI estimating that three-quarters of companies face shortages. In response, the government has been called on to introduce a “more flexible” immigration system, reduce the number of people who are not working or looking for work, and take steps to enable upskilling and education. automation in companies.
It follows calls from CBI chief Tom Danker to use immigration to address labor shortages and that the number of those not looking for work and not working grew to nine million people.
Unemployment is expected to rise next year, peaking at 5% by the end of next year or early 2024, the CBI said. The rate is currently 3.6%.
The economic difficulties were echoed in the highly watched S&P Global CIPS UK Services (PMI) for November, which measures economic activity in the services sector.
Last month’s data showed that a recession will officially begin in this last quarter of 2023 and accelerate in the first three months of next year.
The PMI report indicates that inflation has not come down enough for the Bank of England to slow down its program of interest rate mounted. Rate hikes will be halted in March with the discount rate set at 4%