UK economy to contract in 2023, risks ‘lost decade’: CBI

LONDON, Dec 5 (Reuters) – Britain’s economy is on course to contract by 0.4 percent next year as inflation remains high and companies hold back on investment, with bleak implications for long-term growth, the Confederation of Business Industry forecast on Monday .

“The UK is in stagflation – with rising inflation, negative growth, falling productivity and business investment. Firms see potential growth opportunities, but … headwinds are causing them to hold off on investing in 2023,” CBI Director General Tony Danker said.

The CBI’s forecast marks a sharp downgrade from its last forecast in June, when it forecast growth of 1.0% in 2023 and does not expect gross domestic product (GDP) to return to its pre-Covid level until mid-2024.

Britain has been hit hard by a surge in natural gas prices following Russia’s invasion of Ukraine, as well as the incomplete recovery of the labor market following the COVID-19 pandemic and persistently weak investment and productivity.

Unemployment will rise to a peak of 5.0 percent in late 2023 and early 2024, up from 3.6 percent currently, the CBI said.

British inflation hit a 41-year high of 11.1% in October, sharply squeezing consumer demand, and the CBI predicts it will fall slowly, averaging 6.7% next year and 2.9% in 2024.

The CBI’s GDP forecast is less bleak than that of the UK government’s Office for Budget Responsibility – which last month forecast a 1.4% decline in 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 worst-performing economy in Europe ahead of Russia next year.

The CBI forecasts business investment at the end of 2024 to be 9% below its pre-pandemic level and productivity per worker 2% lower.

To avoid this, the CBI has called on the government to make Britain’s post-Brexit work visa system more flexible, end what it sees as an effective ban on building wind turbines on land, and give greater tax incentives to investments.

“We will witness a decade of lost 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, nor the productivity,” Danker said.

Reporting by David Milliken; editing by Diane Craft

Our standards: Thomson Reuters Trust Principles.

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