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.
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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