Britain's economy is on course to shrink by 0.4% next year, as inflation remains high and companies put their investment on hold, with gloomy implications for longer-term growth, according to the Confederation of Business Industry forecast on Monday.
Britain is in a stagflation with rocketing inflation, negative growth, falling productivity and business investment. Tony Danker, CBI Director-General Tony Danker said that firms see potential growth opportunities but that headwinds are causing them to stop investing in 2023.
The CBI forecast was a downward revision from its last forecast in June when it predicted growth of 1.0% for 2023, and it doesn't expect the gross domestic product GDP to return to its pre-COVID level until mid- 2024.
Britain has been hard hit by a surge in natural gas prices following Russia's invasion of Ukraine, as well as an incomplete labour market recovery after the COVID 19 epidemic and persistently weak investment and productivity.
In late 2023 and early 2024, the CBI said that unemployment would peak at 5.0%, up from 3.6% currently.
Inflation in Britain hit a 41 year high of 11.1% in October, which is a squeezing consumer demand, and the CBI predicts it will be slow to fall, averaging 6.7% next year and 2.9% in 2024.
The GDP forecast from the CBI is less gloomy than that of the Office for Budget Responsibility, which forecast a 1.4% decline for 2023.
The CBI forecasts are in line with the Organisation for Economic Co-operation and Development OECD, which expects Britain to be Europe's weakest-performing economy, bar Russia next year.
The CBI predicted that business investment would be 9% less than its pre-pandemic level, and output per worker will be 2% lower at the end of 2024.
To avoid this, the CBI asked the government to make Britain's post-Brexit work visa system more flexible, end what it sees as a ban on constructing onshore wind turbines and give greater tax incentives for investment.
If action isn't taken, we're going to see a lost decade of growth. GDP is a simple multiplier of two factors: people and productivity. We don't have the people we need, nor productivity, Danker said.