CBI warns of triple whammy on slow economic growth

Times

5 hours ago

Economic growth is on course to slow this year and next as businesses face higher employment costs, rising inflation and headwinds from the global trading environment, the CBI has warned.
The business lobby group downgraded its forecast for annual growth this year from 1.6 per cent to 1.2 per cent, broadly in line with estimates from the International Monetary Fund and the Organisation for Economic Cooperation and Development. The CBI said the UK's economic prospects would worsen next year, with annual GDP growth slowing to 1 per cent. The economy grew by 1.1 per cent last year.
Louise Hellem, chief economist at the CBI, said the government's decision to raise national insurance contributions on employers and lift the national living wage last autumn 'will lead to higher prices, subdued business investment and slower employment growth'.
'We expect that the increase in labour costs will result in higher prices, slower pay growth, softer private sector employment and weaker investment over our forecast,' the CBI said. Unemployment is on course to peak at 4.8 per cent next year, up from the current 4.6 per cent, and inflation would rise to 3.5 per cent in the third quarter of the year, the forecast said.
Business surveys from the CBI suggest that firms will cut back on investment over the next 12 months at the fastest pace in five years. Investment rose sharply at the start of this year as companies attempted to front-run the impact of looming US tariffs on goods exports.
The CBI expected overall UK exports to the rest of the world to contract by 1.3 per cent this year and for imports to fall by 0.9 per cent on the back of heightened uncertainty about the path of US protectionism. The Trump administration has struck a partial tariffs deal on UK car and ethanol trade, but has said it will maintain a minimum 10 per cent tariff on all British goods exports. Net trade will have a 0.1 per cent drag on annual growth next year, the CBI said.
'The direct impact on the UK will be limited by the fact that goods exports to the US account for around 7 per cent of total exports, but US tariffs are still likely to weigh on UK activity by affecting business investment and exports,' Hellem said.
The main driver of economic growth will be consumer spending, with households dipping into their large savings piles as interest rates fall and real income growth remains healthy. The CBI said the Bank of England would cut interest rates from 4.25 per cent to 3.5 per cent by the start of next year as monetary policy will be called upon to support the slowing economy and labour market.