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CBI has downgraded its GDP growth outlook significantly, to -0.4% in 2023 (from 1.0% in its last forecast), after a “turbulent year both politically and economically”.
It said the reason behind the latest change is that the economy is likely to have fallen into a recession in Q3 2022, and is expected to last until the end of 2023, and has called for the government to “use all levers at their disposal to move the UK economy beyond this current trajectory”.
It expects CPI inflation to have peaked in October (at a 40-year high of 11.1%), and to fall gradually over the coming year. But it will remain significantly above the Bank of England’s 2% target over 2023, ending the year at 3.9%.
The outlook improves in 2024, when the economy grows by 1.6%, thanks to inflation falling back further and the squeeze on household incomes alleviating. The recovery in household spending also lifts business and residential investment.
But despite the return to growth, it said the longer-term economic prospects “remain lacklustre”– by the end of 2024, it expects output per worker to remain 2% below its pre-COVID trend, and 19% below a continuation of its pre-financial crisis trend.
Similarly, another bout of weakness in business investment leaves it still 9% below its pre-COVID level at the end of 2024.
By the end of the forecast, UK GDP remains 8% below its pre-COVID trend (from 2010 to 2019), and 27% below its pre-financial crisis trend.
Tony Danker, CBI director-general, said: “Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment. 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. Government can change this. Their action or inaction to support growth and investment will be a key determinant of whether recession is shallow or deep.
“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.”
He added: “There is no time to waste. The Prime Minister and Chancellor must use levers of growth to ensure this downturn is as short and shallow as possible, but also to address the persistent weakness in investment and productivity. We cannot afford to have another decade where both are stagnant.”
