CBI cuts UK growth forecasts due to supply chain, shortages

The CBI has cut its forecasts for economic growth due to costs and shortages over recent months and warned that the emergence of the Omicron variant could see it dragged back further.

The UK's GDP is expected to increase by 6.9% this year and 5.1% in 2022, but that is a decline from an earlier outlook of 8.2% and 6.1%.

It is expected to be 3% short of where it would have been if pre-COVID growth trends had continued by the end of 2023, according to the business organisation.

The downgrade came after the emergence of short-term headwinds, including rising costs and shortages, following the CBI's previous forecast in June.

In recent months, businesses have been held back by global supply chain problems as well as shortages of UK workers in key sectors such as haulage and food processing.

Inflation recently hit its highest level in a decade, and is predicted to hit 5% in the coming months, with higher fuel prices and energy bills taking their toll.

Tony Danker, CBI director-general, said significant headwinds and rising costs of living threaten the extent of recovery and prospects for economic success. In addition to chancellor Rishi Sunak s temporary super-deduction tax break, he called for more action to foster business investment and help growth in the long term.

A one-hit wonder isn't enough to make up for four decades of underperforming business investment, he said.

The CBI expects supply chain frictions to be dissipated by the middle of next year and household spending will continue as incomes grow and households spend some of the extra savings built up during the epidemic.

It sees business investment enjoy only a short-lived boost and continues to lag behind other economies, as the super-deduction ends and higher corporation taxes kick in, with the recovery in exports likely to be lacklustre, said Rain Newton-Smith, CBI chief economist: "We expect a pretty firm economic recovery ahead, even though the emergence of Omicron poses another downside risk to our forecast. She stressed the importance of normalising relations with the EU, our biggest and closest trading partner, which will aid cooperation in a host of other areas. The forecasts were compiled before the emergence of Omicron.

They came after a week of volatility in global stock markets as investors tried to gauge the impact of the COVID -- 19 variant.

British Airways has described the travel restrictions over the weekend as a devastating blow to the industry.

The Omicron variant added further uncertainty to the chances of a pre-Christmas Bank of England interest rate hike.