January 28, 2023

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UK economy will shrink in 2023, ‘lost decade’ risks: CBI

UK economy will shrink in 2023, 'lost decade' risks: CBI

LONDON (Reuters) – The Confederation of British Business Industry forecast on Monday that Britain’s economy is on track to contract by 0.4% next year as inflation continues to rise and companies suspend investment, with grim implications for long-term growth.

“Britain is in stagflation – with skyrocketing inflation, negative growth, low productivity and business investment. Businesses see potential growth opportunities but … headwinds are causing them to pause investment in 2023,” said Tony Dunker, director general of the Central Bank of Iraq.

The CBI’s forecasts point to a sharp downgrade in the rating from its last forecast in June, when it forecast 1.0% growth for 2023, and it does not expect GDP to return to its pre-COVID level until mid-2024.

Britain has been hit hard by soaring natural gas prices following the Russian invasion of Ukraine, as well as an incomplete labor market recovery after the COVID-19 pandemic and continued weak investment and productivity.

The CBI said unemployment will rise to a peak of 5.0% in late 2023 and early 2024, up from 3.6% currently.

British inflation hit a 41-year high of 11.1% in October, severely squeezing consumer demand, and the CBI expects it to slow down, averaging 6.7% next year and 2.9% in 2024.

The CBI’s GDP forecast is less bleak than that of the British government’s Office for Budget Responsibility – which last month projected 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 the weakest economy in Europe outside of Russia next year.

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The CBI expects business investment at the end of 2024 to be 9% lower than its pre-pandemic level, and output per worker to fall by 2%.

To avoid this, the CBI has called on the government to make the post-Brexit work visa regime more flexible, end what it sees as an effective ban on building onshore wind turbines, and give greater tax incentives for investment.

“We will see a lost decade of growth if action is not taken. GDP is a simple multiple of two factors: people and their productivity. But we don’t have the people we need, nor the productivity,” Danker said.

(Reporting by David Milliken). Editing by Diane Craft

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