A major business lobby group has warned that the United Kingdom risks experiencing a "lost decade" of development if no measures are taken to address falling corporate investment and a lack of qualified workers.
The Confederation of British Industry (CBI) released a gloomy outlook on UK economy on Monday, stating that 75% of businesses are having trouble hiring the right people with the right abilities. It advocated for reforms to government policy, such as a more lenient immigration system and investment tax benefits.
UK Inflation Will Continue in 2023
CBI director general Tony Danker noted that "Britain is experiencing stagflation," characterized by soaring prices, negative GDP, and a decline in productivity and corporate investment.
He added that although businesses are aware of growth prospects, they are holding off on investments until next year due to a lack of "reasons to believe" amid adversities. Danker said that without intervention, there will be a "lost decade of growth" in UK economy.
"GDP is a simple multiplier of two factors: people and their productivity. But we don't have the people we need, nor the productivity," he said in a statement reported by CNN.
The United Kingdom's economy is the only one of the Group of Seven that hasn't entirely rebounded from the COVID-19 pandemic. Inflation reached a 41-year high in October due to skyrocketing energy and food prices. As the cost of living issue hits employees more and harder, widespread strikes have become the norm in recent months.
Among the advanced countries predicted by the CBI, the UK's GDP is expected to shrink at a somewhat quicker rate than Germany's next year. Energy shortages caused by the Russia-Ukraine war have hit Germany particularly hard.
Since June, when it forecast 1% growth, the CBI has revised its outlook for the UK economy downward to 0.4% contraction in 2023. It is anticipated that the economy would not be back to pre-COVID-19 levels until the second quarter of 2024.
The CBI predicts inflation will decrease slightly over the next year, but it will stay substantially over the Bank of England's 2% goal during 2023, leading to a year-long drop in consumer expenditure.
Beginning in the middle of 2023, the organization forecasts a decline in company investment that would leave it 9% below its pre-pandemic level by the end of 2024. In addition, the CBI predicts that at that time, output per worker would still be 2% below its already sluggish pre-COVID-19 trend in UK economy.
The group advised the government to use permanent tax incentives to boost capital investment by £50 billion ($61.4 billion) each year by the end of the decade.
UK Recession, Economic Recovery Won't Happen Soon
According to the government, the nation has already entered a recession, which is when the economy contracts for two consecutive three-month periods, as BBC reported. When firms start losing money and the unemployment rate starts to rise, it's an indication that the economy is doing poorly.
Energy and food costs have skyrocketed this year because of the Russia-Ukraine war and COVID-19 pandemic and this is at least in part due to external forces that will cause UK recession 2023.
A Treasury Department official said that the government has been "honest" in saying that the UK economy faces challenging times amid severe global pressures, noting that the country is "not alone in that challenge." The recent Autumn Statement proposals, such as increasing the Annual Investment Allowance to £1 million ($1.2 million) beginning on April 1, 2023, were also mentioned.
Inflation is outpacing pay, putting consumers on course for the largest living standards shock ever. The Office of Budget Responsibility predicts a 7.1% drop in real earnings during the next two years, Oil Price reported. Spending will decline as a result of the stress on living standards, leaving the UK recession for at least another year. Though the economy will suffer a decline in GDP, economists believe it will be less severe than others in recent history.
Rising energy prices are putting a strain on businesses, leading them to cut back on less lucrative operations. Senior UK economist at firm Pantheon Macroeconomics Gabriella Dickens believes companies would have to reduce headcount to compensate for lower consumer spending.
She predicted that due to increasing financing costs and decreased demand, companies will take "decisive" action to cut employee levels in the next year.
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