The British economy is on course to shrink 0.4% next year as inflation remains high and companies put investment on hold, the Confederation of Business Industry (CBI) warned on Monday.
According to the report, the UK has already fallen into a “short and shallow” recession that will leave business investment 9% below 2019 levels and productivity 2% below its pre-pandemic trend at the end of 2024. Persistent weak productivity and business investment “doesn’t bode well for the country’s potential to grow,” it said.
Inflation in the country, which hit a 41-year high of 11.1% in October, was forecast to average 6.7% next year and 2.9% in 2024.
The CBI expects the UK to suffer the second worst recession among major economies, after Germany.
“Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment,” CBI Director-General Tony Danker said. “Firms see potential growth opportunities but a lack of ‘reasons to believe’ in the face of headwinds are causing them to pause investing in 2023,” he explained.
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 constructing onshore wind turbines, and give greater tax incentives for investment.
According to the lobby group, the government’s plan needs to be built around boosting productivity and increasing labor supply as the UK is the only major advanced economy with fewer people working than before the pandemic.
“We will see a lost decade of growth if action isn't taken. GDP is a simple multiplier of two factors: people and their productivity. But we don't have people we need, nor the productivity,” Danker stressed.
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