The UK recession might hold back its progress by a decade or so
An influential business lobby group has warned that the UK risks experiencing a “lost decade” of prosperity if nothing is done to address falling corporate investment and a labor crisis.
The Confederation of British Industry (CBI) reported that three-quarters of businesses are having trouble locating the workforce and skilled labor they require in a somber economic prediction released on Monday. A more open immigration policy and tax cuts to encourage investment were among the suggested changes to government policy.
“Businesses are deferring investments in 2023 despite growth potential because they have little reason to be hopeful in facing challenges. This is known as Stagflation in Britain and is characterized by rising inflation, sluggish economic growth, and decreased company investment,” Tony Danker, the general director of the CBI, stated.
“In the event that nothing is done, we risk losing a decade’s worth of growth. This is because people’s production and GDP are multiplied by one another. But we lack the necessary personnel, productivity, and resources, “Danker continued.
The only G7 economy that has yet to recover from the pandemic entirely is the United Kingdom. In October, inflation reached a 41-year high due to rising energy and food prices. As workers feel the pain of a deepening cost of living problem, widespread strikes have become routine in recent months.
Between April and June, UK employees experienced the most significant decline in their purchasing power in more than 20 years as average real wages—which account for inflation—fell by 3%. The decline in real wages was one of the biggest since public records began in 2001, albeit less significant in the third quarter.
The Conservative Party chairman Nadim Zahawi stated on Sunday that the government is considering using the military to keep public services operating, which shows how unpleasant strike action has grown.
Only Germany’s GDP is expected to decline at a slightly quicker rate than the UK’s, making the UK economy’s prognosis for next year among the lowest of the developed economies covered by the CBI prediction. The reason behind this is the energy crisis brought on by Russia’s invasion of Ukraine, which has also fully affected Germany.
In contrast to its 1% growth forecast from June, the CBI now projects that the UK economy will contract by 0.4% in 2023. Only the second quarter of 2024 is anticipated to see the economy reach its pre-Covid size.
According to the CBI, consumer spending will reduce over the next year as inflation progressively declines. Still, it will remain substantially above the Bank of England’s 2% objective throughout the same period.
The firm predicts that by the end of 2024, company investment will be 9% lower than before the epidemic, down from its peak in the mid of next year. By then, the CBI forecasts that the productivity per worker will still be 2% below its “poor” pre-Covid trend.
Although it is encouraging that the next recession will be brief, the head economist for the CBI, Alpesh Paleja, said in a statement that it is worrying that a longer-term decline in productivity and business investment continues to take hold. As a result, the ability of the economy to grow over the long run and living standards are not good.
According to the organization, permanent tax advantages would help the government solve investment deficits and, by the end of the decade, would enable an additional £50 billion ($61.4 billion) in capital expenditure annually.
According to Danker, the nation cannot afford another ten years of sluggish investment and output.