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

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

“The UK is in stagflation ̵[ads1]1; with high inflation, negative growth, falling productivity and business investment. Businesses see potential growth opportunities but … headwinds are causing them to halt investment in 2023,” said CBI director-general Tony Danker.

The CBI’s forecast marks a sharp downgrade from its last forecast in June, when it predicted growth of 1.0% for 2023, and it does not expect gross domestic product (GDP) to return to pre-COVID-19 levels until mid-2024.

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

The unemployment rate will rise to a peak of 5.0% in late 2023 and early 2024, up from 3.6% currently, the CBI said.

UK inflation hit a 41-year high of 11.1% in October, pushing consumer demand hard, 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 gloomy than the UK government’s Office for Budget Responsibility – which last month predicted a 1.4% contraction for 2023.

But the CBI forecast is in line with the Organization for Economic Co-operation and Development (OECD), which expects Britain to be Europe’s weakest economy outside of Russia next year.

The CBI’s forecast for business investment at the end of 2024 will be 9% below pre-pandemic levels, and output per worker 2% lower.

To avoid this, 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 building wind turbines on land, and provide greater tax incentives for investment.

“We will see a lost decade of growth if nothing is done. 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

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