LONDON, Dec 5 (Reuters) – Britain’s economy is poised to contract by 0.4 percent next year as inflation remains high and businesses put investment on hold, with bleak implications for growth in long term, the Confederation of Business Industry predicted on Monday.
“The UK is stagnating, with rising inflation, negative growth, falling productivity and business investment. Businesses see potential growth opportunities, but… headwinds are causing them to halt investment by 2023 CBI CEO Tony Danker said.
The CBI’s forecast marks a sharp reduction from its last forecast in June, when it forecast growth of 1.0% by 2023, and it does not expect gross domestic product (GDP) to return to its pre- the COVID-19 until mid-2024.
The UK has been hit hard by rising natural gas prices following Russia’s invasion of Ukraine, as well as an incomplete labor market recovery following the COVID-19 pandemic and investment and persistently weak productivity.
Unemployment would rise to a peak of 5.0 percent in late 2023 and early 2024, up from the current 3.6 percent, the CBI said.
British inflation hit a 41-year high of 11.1% in October, sharply dampening consumer demand, and the CBI expects it to fall slowly, averaging 6.7% in next year and 2.9% in 2024.
The CBI’s GDP forecast is less gloomy than that of the UK government’s Office for Budget Responsibility, which last month forecast a 1.4% fall by 2023.
But the CBI’s forecast is in line with the Organization for Economic Co-operation and Development (OECD), which expects Britain to be the weakest performing economy in Europe, excluding Russia, next year.
The CBI forecasts business investment at the end of 2024 to be 9% below its pre-pandemic level and output per worker 2% lower.
To avoid this, the CBI called on the government to make the UK’s work visa system more flexible after Brexit, end what it sees as an effective ban on building onshore wind turbines and give more tax incentives to investment.
“We will see a lost decade of growth if action is not taken. GDP is a simple multiplier of two factors: people and their productivity. But we don’t have the people we need, and we don’t have the productivity,” Danker said.
Reporting by David Milliken; edited by Diane Craft
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