Latest news with #LouiseHellem
The Independent
3 hours ago
- Business
- The Independent
Why UK's economic growth has been downgraded
The Confederation of British Industry (CBI) has downgraded the UK 's economic growth forecast due to rising costs and weak business investment, impacting the government 's growth ambitions. The CBI now projects the UK economy to grow by 1.2 per cent this year, down from its previous forecast of 1.6 per cent, and has also lowered the 2026 growth forecast from 1.5 per cent to 1 per cent Higher employment costs, stemming from the autumn budget's increases to national insurance contributions and the national minimum wage, have led to higher pricing and reduced capital expenditure and hiring among firms, according to the CBI. Shadow chancellor Mel Stride criticised Labour 's policies, claiming that higher employment costs are killing growth. The CBI's chief economist, Louise Hellem, emphasised the need for the government to use its industrial strategy to drive a thriving environment for businesses, given the challenges posed by domestic and global headwinds.
Telegraph
3 hours ago
- Business
- Telegraph
Reeves tax raid blamed as UK suffers dramatic growth downgrade
Britain's leading business group has slashed its UK growth forecasts after Rachel Reeves's tax raids slammed the brakes on the economy. The Confederation of British Industry (CBI) expects GDP to grow by just 1.2pc this year and 1pc next year, down from the 1.6pc and 1.5pc previously predicted. Louise Hellem, the CBI's chief economist, suggested the rising cost of employment in the wake of the Chancellor's Budget last October, which has hammered the private sector, had contributed to the downgrade. She said: 'Those decisions at the autumn Budget to increase taxes on National Insurance contributions alongside the increases in the national living wage have had a material impact on business decisions. 'They have made costs of being in the UK increase and they have meant many businesses have had to make tough choices, particularly on hiring decisions – they are pausing those.' Ms Reeves's £25bn raid raised the rate of tax employers pay on their workers' wages from 13.8pc to 15pc, and cut the threshold at which the levy kicks in – making it more expensive to hire part-time staff in particular. Ms Hellem urged the Chancellor to seek ways to make the tax system more efficient instead of raiding businesses yet again in the 2025 Budget scheduled for the autumn, as weak growth raises fears that another black hole will open up in the public finances over the coming months. Global uncertainty The CBI also warned that businesses are struggling with Donald Trump's trade war. Exporters are suffering directly from the taxes applied to their sales into the US, while uncertainty is hitting growth in the wider global economy and undermining confidence in investment decisions. Sustained geopolitical turmoil, including the strikes between Israel and Iran, add to the sense of uncertainty which threatens business investment. Martin Sartorius, economist at the CBI, said: 'All of these global events lead to a huge amount of volatility in global markets, leading to a more risk-averse mindset, so businesses might be thinking more about whether they want to invest, given currency fluctuations and the interest rate outlook. 'Given how much tariffs have chopped and changed over the last few months, some firms are just saying it is better to scenario plan and to wait and see, because if they suddenly shift their operations from one country to another, maybe they will find out in a day, a week, a month, that tariffs or other restrictions are hitting that location.' Britain's GDP grew by 0.7pc in the first three months of the year, boosted in part by a surge in exports as American importers sought to bring in goods before tariffs added to their price. The CBI's economists expect quarterly growth to slow over the course of this year then recover into 2026 as rising wages, slowing inflation and lower interest rates allow households to spend more money. The analysts predict the Bank of England will cut its base rate from 4.25pc today to 3.5pc in a year's time. Borrowing rules The growth forecast downgrade came as Helen Miller, from the Institute for Fiscal Studies, warned the Chancellor that the changes to the borrowing rules 'is not a get-out-of-jail-free card' for extra spending. Speaking before MPs on Tuesday, she said: 'The fiscal rules are supposed to be a constraint on what you can do – they are not meant to be a target to say we've freed up this space, now let's spend it all. 'We are still borrowing money. That comes with cost, it comes with debt interest costs.' Ms Reeves changed the fiscal rules last year to allow her to borrow another £50bn, including by changing the targeted measure of public debt to offset financial assets against borrowing. The rules also allow borrowing for investment, but not for day-to-day government spending. 'It matters what you are borrowing for. There is a fiscal rule [which is] trying to be a constraint, it is not a get-out-of-jail free card, it doesn't mean that once you have got that constraint you can always just borrow up to the maximum, spend it on what you like and that is ok,' Ms Miller said. 'You still have to do hard yards of thinking what are you borrowing for, for what purpose, is it a good use of borrowing.' A Treasury spokesman said: 'We're investing in Britain's renewal through our Plan for Change to make working people better off, and the spending review set out how we'll deliver jobs and growth – including plans to improve city region transport, a record investment in affordable homes and funding Sizewell C. 'We have also secured deals with the EU, US and India to help lower costs for businesses and we have stabilised the public finances helping interest rates to fall four times since July.'
Times
8 hours ago
- Business
- Times
CBI warns of triple whammy on slow economic growth
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.
Reuters
10 hours ago
- Business
- Reuters
US tariffs, tax hikes to depress UK growth this year and next, CBI forecasts show
LONDON, June 18 (Reuters) - One of Britain's leading business groups on Wednesday slashed its forecast for economic growth in 2025 and next year due to headwinds from U.S. President Donald Trump's tariffs and an increase in payroll taxes, a survey showed. Growth this year is now forecast to be 1.2%, the Confederation of British Industry said, lower than the 1.6% it predicted in December. The economy will then expand by 1.0% in 2026, down from its previous forecast of 1.5%. It said labour cost increases – such as the rise in social security contributions and the minimum wage that came into effect in April - were affecting firms' hiring and investment plans, and are also expected to push up prices and reduce profits. The forecasts were made before the conflict between Israel and Iran broke out last week and pushed up oil prices. The CBI said that it was monitoring any impact on UK households, businesses, and inflation. "The unpredictable global outlook combined with rising employment costs, gloomy business sentiment, and subdued investment intentions means it's more important than ever that government pulls all the levers it can to set the UK on a path to sustainable growth," Louise Hellem, chief economist at the CBI, said. The CBI's forecast assumes the direct impact on the UK from tariffs will be limited as goods exports to the United States account for around 7% of total UK exports, although they will likely weigh on business activity. Britain's economy contracted sharply in April due to a one-off hit from the end of a tax break on property sales and concerns about Trump's announcement of wide-ranging tariffs on April 2. So far, it is the only major economy to have agreed a trade deal with the U.S., which is intended to exempt Britain from Trump's increased tariffs on aluminium and steel imports, although a 10% goods levy remains in place. The Bank of England at its last interest rates decision in May estimated that Trump's tariffs will lop 0.3% off annual output in three years' time, and slightly push down on inflation. The BoE is expected to keep rates on hold next week, and investors are pricing in two more quarter-point rate cuts by the end of 2025. The CBI expects inflation to remain above the BoE's target this year, partly due to higher household energy costs and regulated water bills, before falling to 2.5% in 2026. Wage growth was set to weaken and the BoE will cut its benchmark Bank Rate slowly to 3.5% by late 2025 from 4.25% now, the CBI said. Economic growth in 2026 will be largely driven by household spending, the CBI said, with cooling inflation and lower borrowing costs to help consumer spending pick up. But economists at the CBI were not expecting measures announced in finance minister Rachel Reeves' Spending Review last week to have much of an impact on growth in 2025 and 2026, although they saw a benefit in the long term. "The Spending Review signalled a down payment on hardwiring the growth mission into government priorities, with targeted investment that will raise the long-term ceiling of the economy," Hellem said.
The Independent
24-02-2025
- Business
- The Independent
Net zero economy grows 10% in a year with £83bn boost to UK, report says
The 'net zero' sector has grown by 10% in the past year, adding £83 billion to the UK economy and boosting regional growth, a report suggests. A study commissioned by think tank the Energy and Climate Intelligence Unit (ECIU), with analysis from CBI Economics and the Data City, also found employment in green industries and businesses had grown 10% in the past year, supporting the equivalent of 951,000 full-time jobs. The report comes amid pushback in some quarters against the efforts to meet a legally binding goal to cut the country's greenhouse gas emissions to zero overall – known as net zero – by 2050 to tackle climate change. It suggests the UK net zero economy – which includes sectors such as renewables, electric vehicles, low carbon heating, green finance and recycling – is a significant driver of growth, innovation and productivity. And it finds that the net zero economy is growing significantly in regions beyond London and the south east, such as Yorkshire and the Humber and Scotland, and is boosting some of the most deprived areas of the country. The study found net zero is particularly important in Scotland, making up around 4.9% of the country's gross value added (GVA) – adding some £9.1 billion to the economy – and supporting around 3.8% of its jobs. UK-wide, there were 22,800 businesses classed as part of the net zero economy by the end of 2024, the majority of which were small and medium-sized businesses, the analysis found. The sector generated £83.1 billion in additional value to the economy, with £28.8 billion being generated by the activity of net zero businesses, and a further £54.3 billion in the supply chain and wider economy. And it supported 273,000 full-time equivalent jobs directly in the sector – overtaking the telecommunications sector in the past year – along with 679,000 in the supply chain and wider economy, the analysis found. Jobs in net zero industries are typically better paid than the UK average, with employees in the sector earning an average of £43,076 a year, compared with £37,430 for full-time employees across the UK as a whole, the report found. Net zero jobs are highly productive, with each full-time role generating £105,000 in economic value, well above the UK average, and attracted public, private and foreign direct investment worth £23 billion in 2024, it said. Louise Hellem, chief economist at the CBI, said: 'The net zero economy continues to demonstrate that there are huge emerging markets for green technologies that the UK must capitalise on. 'It is clear, you can't have growth without green. 'At a time when the cost of doing business has squeezed appetite for capital investments and high energy prices are being cited as a drag factor across the economy, investments in clean technologies can significantly bolster competitiveness and productivity.' She said the report underlined why net zero needed to be at the heart of the UK's growth strategy, and pointed to the Government's strategy to achieve clean power by 2030 as signalling the investment needed to decarbonise the power sector. But ministers should prioritise decarbonising sectors including transport, buildings, industry and manufacturing in the spending review and industrial strategy to significantly boost the net zero economy and reduce emissions, she urged. Peter Chalkley, director of the ECIU, said climate change laws and resulting relative policy stability had been a 'foundation for this sustained net zero growth, but it cannot be taken for granted and political signals matter for investors'. 'Nearly a million British livelihoods now depend on the net zero economy, which has at its core thousands of small businesses based all around the UK, from Grimsby to Gateshead to Glasgow, insulating homes and manufacturing equipment,' he added. Commenting on the report, Labour MP Luke Murphy warned that the country was at a 'moment of risk', with less of a cross-party consensus on climate than in the past, as some Conservative and Reform politicians criticise net zero, electric cars and renewables. 'There are huge economic costs of not seeing this transition as an economic opportunity,' he said, adding he thought the Government was determined to keep it at the heart of its 'growth mission'. Energy Secretary Ed Miliband said: 'Clean power and accelerating towards net zero are the economic opportunities of the 21st century – and the Energy and Climate Intelligence Unit's findings show this clearer than ever. 'These numbers speak for themselves. Net zero is essential to growth, a strong economy and money in working people's pockets. 'Our mission to make Britain a clean energy superpower is the route to energy security, good jobs and investment in our communities.'
