CBI Revises Economic Growth Forecast for Next Year to 5.1% | Confederation of British Industry (CBI)
Economic forecasters lowered expectations for Britain’s recovery and said further pain could follow, depending on the severity of the Omicron variant of Covid-19 and government action to avoid a ” cliff edge ”for business investment.
The Confederation of British Industry, the UK’s main business lobby group, said in June it expected the economy to grow 8.2%.
But on Monday, he reduced that forecast to 6.9% and downgraded his forecast for 2022 from 6.9% to 5.1%.
He attributed the more pessimistic outlook to weaker-than-expected output since his last forecast, with supply chain disruption being one of the factors weighing on the economy.
Accounting firm KPMG has issued an even darker prediction, saying it expects growth to reach 4.2% at best next year, even if the Omicron variant turns out to be a “false alarm” .
He said any increased restrictions imposed by the government to stop the spread of the variant would further hamper the recovery.
Growth would slow to 2.6% if moderate measures such as social distancing are needed, KPMG predicted, while production could drop to 1.8% if vaccines prove ineffective against Omicron and lockdowns are imposed in January and February.
KPMG and the CBI also voiced concerns over lack of business investment, which they cited as an obstacle to a sustained long-term recovery. Further government action will be needed to avoid a sharp drop in business investment in 2023, when temporary business support measures are removed, the CBI said.
“The UK’s resolution for the New Year must be to give businesses the confidence to grow,” CBI Managing Director Tony Danker said.
“We should look at the potential of the economy and seize the opportunity. I know, speaking with companies of all sizes, that they have an ambitious investment mindset and are eager to execute plans for growth.
“But as intentions have thawed, we come to a cliff edge in 2023.”
The CBI cited Treasury plans to do away with the ‘super deduction’, a £ 25bn tax break allowing them to claim 25p relief for every £ 1 they spend on plant and machinery , as well as a planned increase in corporation tax of 19%. at 25%.
“As a result, business investment will continue to lag behind [behind] other advanced economies, ”the employer lobby group said.
Jon Holt, managing director of KMPG UK, echoed the concerns. “Long-term economic growth remains dependent on the UK’s ability to increase productivity, reduce uncertainty and give businesses the confidence they need to invest,” he said.
“We need to create the conditions to accelerate business investment in technology and fuel the UK’s recovery.”
The CBI also said the recovery in exports is likely to be lackluster after what it has described as disappointing growth in this year so far.
Household spending would remain the main driver of the economy, the employers’ organization said, generating 90% of growth in 2022 and two-thirds of gross domestic product in 2023.
Consumer spending would be supported by households which would deplete the excess savings accumulated during the pandemic.
He predicted that unemployment would increase only slightly following the winding-up of the government’s leave scheme and that the unemployment rate would return to its pre-crisis level of 3.8% by the end of 2023. .
Rain Newton-Smith, CBI chief economist, said: “We expect a fairly solid economic recovery to come, although the emergence of Omicron naturally represents another downside risk to our forecast. Ultimately, this underscores the need for equitable distribution of vaccines across the world – supporting lives, sustaining livelihoods and freeing our industry for international travel, also boosting trade. “
The CBI expects current constraints on the supply side to ease by the middle of next year, with inflation peaking at just over 5% in April.
Despite the risks of inflation, KPMG said uncertainty over Omicron meant the Bank of England was unlikely to raise interest rates in December. However, he said rates are expected to increase to 1-1.25% by the end of 2023 to prevent wage growth from accelerating as the recovery gathers pace.