UK companies have “no reason to believe in the government’s stimulus plans” unless ministers spur long-term growth and investment, the head of Britain’s largest corporate group said. Inaction will lead to a “lost decade of growth,” she warned.
The UK is already in the grip of stagflation – skyrocketing inflation and falling GDP growth – according to a gloomy economic outlook from the Confederation of British Industry (CBI).
The recession is projected to shrink the UK economy by 0.4% next year, with labor productivity falling 2% below pre-pandemic levels by the end of 2024.
He warns that business investment will be 9% below pre-pandemic levels and consumer spending will fall year-round next year as inflation continues to weigh on British households next year.
She expects inflation to peak but remain well above the Bank of England’s 2% target next year.
Tony Dunker, CEO of CBI, said: “The UK is in stagflation – with skyrocketing inflation, negative growth and falling productivity and business investment. Companies see potential growth opportunities, but a lack of “reason to believe” in the face of headwinds means they are not investing in 2023.
“The government can change that. What you do or don’t do to support growth and investment will be a major factor in determining whether a recession is shallow or deep.”
“We will see a lost decade of growth if nothing is done. GDP is a simple multiplier of two factors: people and their productivity. But we don’t have the right people or the productivity.”
“We must not waste time. The prime minister and the chancellor need to leverage growth to keep this downturn as short and shallow as possible, and to address the persistent decline in investment and productivity. We cannot afford another decade of stagnation for both.”
He said the prime minister and chancellor had stabilized financial markets following the Trass-Kwarteng mini-budget, but they needed to take action to accelerate long-term growth, according to the latest CBI economic forecast.
Economic growth can only be the result of increasing productivity and maximizing the use of labor. With three-quarters of companies facing bottlenecks, she called for a “one plan” to address them, including measures to upgrade workforce skills and introduce more automation.
Steps were also needed to introduce a more flexible immigration system, reduce economic inactivity and return more people to the post-pandemic workforce, as ministers were urged to “use all available resources to take the UK economy off this current trajectory”. removing the brakes from the onshore wind and updating the national spatial planning framework.
Alpesh Palekha, chief economist at CBI, said: “Another recession within two years is tough. A second year of high, albeit declining, inflation will hit households hard, especially lower income groups. If price pressures remain high, many companies will also operate in a challenging trading environment.”
“While it is reassuring that the coming recession will be shallow, it is worrying that long-term productivity and business investment are picking up. This does not bode well for living standards and the economy’s ability to grow in the long run. .”
“The time has come to act. The government needs to attract more business investment to spur growth. Our analysis shows that by the end of the decade, a permanent full payment regime will generate additional capital investment of £50bn annually.”
The CBI warning came after Bank of England rate-setter Swati Dhingra said higher interest rates could lead to a deeper and longer recession, adding there was little evidence that demand for higher wages was a risky reversal in the price spiral.
While most of her colleagues supported a 75 basis point rate hike to 3% last month, Ms Dingra voted in favor of raising interest rates by half a percentage point last month and later told MPs the bank could deepen an expected recession if further increase the cost of borrowing.
“You’re seeing a much deeper and longer recession at a much higher pace,” she said. “I think that’s something we should all be worried about… if tightening continues at this pace, won’t we end up prolonging the recession?”
Source: I News
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