- Growth downgraded to 1% in 2023 as consumer spending weakens
- Household recession will come – making business investment even more essential
- Real household incomes to fall at fastest pace on record (since 1950s)
- CBI outlines series of interventions to boost growth
With less than 40 days until parliament goes into recess, the countdown is on for the Prime Minister and Chancellor to take the vital actions needed to spare the country from dipping into recession, according to the latest CBI economic forecast.
With the cost-of-living crunch showing no sign of abating, airports struggling to cope, national rail strikes on the horizon and Groundhog Day battles with the EU over the Northern Ireland Protocol, there is real risk that the economy stays a ‘distant second to politics’ this summer.
The CBI’s outlook suggests growth will soften as household spending turns downwards amid dented business and consumer confidence. As a result, the CBI has downgraded its GDP growth outlook significantly, to 3.7% in 2022 (from 5.1% previously) and 1.0% in 2023 (from 3.0% previously).
High inflation is the primary source of weaker growth. CPI inflation reached a 40-year high in April (9%), driven higher by a cocktail of challenges – ranging from supply chain pressures, rising commodity prices and war in Ukraine.
Inflation is expected to remain high into Autumn, rising to another peak in October (8.7%), given a likely rise in Ofgem’s energy price cap. The result is a historic squeeze in household incomes, which will lower consumer spending. This in turn will weaken GDP growth towards the end of this year and into the first half of next year.
Tony Danker, CBI Director-General, said:
“Let me be clear – we’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a recession. And even if we don’t, it will feel like one for too many people.
“Times are tough for businesses dealing with rising costs, and for people on lower incomes concerned about paying bills and putting food on the table.
“It’s as clear as day that business investment is one of the few bright spots left in our economy. The Super Deduction is one of the only reasons we have staved off the threat of recession for now – there must be a permanent successor.
“We’ve had weeks of politicking with the country standing on the brink of a summer of gridlock.
“There is only a small window until recess. Inaction this summer would set in stone a stagnant economy in 2023, with recession a very live concern.
“We need to act now to install confidence. This can wait no longer.”
What needs to be done this summer
Build momentum behind business investment ahead of the Autumn Budget:
- Make a full commitment to a permanent successor the super-deduction
- Cut approval times for new offshore wind farms from 4 years to 1 year
Boost confidence in the economy:
- Call for immediate talks to finally resolve the Northern Ireland Protocol impasse and get Brexit done – resist unilateral action with both sides getting on with the job of finding a negotiated outcome
- Act as an honest broker between rail companies and unions to find solutions to avoid a summer of train chaos
- Announce a permanent replacement to the Recovery Loan Scheme to support cashflow
Take immediate steps to alleviate labour and skills shortages:
- Get real on industry concerns over labour shortages – get going on a new shortage occupations list and add sectors with obvious shortages, like aviation, until that review can be completed.
- Add immediate flexibility to the apprenticeship levy for one year allowing all employers in the country to use their levy funds to tackle labour shortages.