Win Business Books

CBI Warns Of Recession Unless Government Acts Now

After downgrading its GDP growth forecast from 5.1% to 3.7% in 2022, the Confederation of British Industry (CBI) is now warning the Government that unless it acts immediately, the UK risks sinking into a recession.

The CBI wants the Government to focus on the economy and take decisive action now, before Parliament goes into summer recess, less than 40 days from now. Otherwise, the leading business group predicts that the UK will dip into recession.

With the cost-of-living crisis continuing to squeeze household budgets and dampening consumer confidence, it is vital, so the CBI, that the Prime Minister and Chancellor invest into the economy to prevent the worst.

Why The CBI Is Warning Of A Recession

In its recent economic forecast, the CBI has downgraded its growth forecast for 2022 to 3.7% and to 1%, down from 3%, for 2023. The main driver for this weak growth is rising inflation. In April, it stood at a 40-year high of 9%, but experts expect it to rise over 10% by the end of the year.

As inflation rises, prices soar as well, which results in consumers cutting back on their spending. This will further weaken the growth of the economy in the next few months, possible into next year.

Combined with other challenges, such as supply chain issues, rising energy and fuel costs, increasing commodity prices and a labour shortage, small businesses will find it difficult to stay afloat. And unless the Government acts now to alleviate these pressures, a recession could become reality.

Let me be clear – we’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a recession. And even if we don’t, it will feel like one for too many people. […] There is only a small window until recess. Inaction this summer would set in stone a stagnant economy in 2023, with recession a very live concern.

Tony Danker, Director-General at the CBI

That’s why the CBI has outlined a series of interventions the Government should make now to boost growth and prevent a recession.

What The CBI Is Asking For

In order to boost growth and avert a recession, the CBI wants the Government to implement the following interventions:

  1. Commit fully to a permanent successor to the super-deduction relief, which is set to end on 31 March 2023. This temporary tax relief gives companies who invest in new plant and machinery assets a 130% first-year capital allowance. The CBI believes that continuing this relief will boost investment and therefore growth.
  2. Cut approval times for new offshore wind farms down to one year. Currently, it takes four years, but the CBI believes that cutting the time it takes to get approval will boost the economy.
  3. Because the issues around the Northern Ireland Protocol mean that many businesses struggle to trade with the EU, the CBI wants the Government to resolve the impasses by negotiating and finding a solution, rather than implementing unilateral action. The CBI notes that exports are still lower than those of other countries, with 10% below pre-Covid levels, which they put down to the issues Brexit poses to UK businesses.
  4. The announced rail strikes could cause a summer train chaos that will impact negatively on businesses. So the CBI wants the Government to act as an honest mediator between rail companies and unions.
  5. With the Recovery Loan Scheme ending on 30 June 2022, the CBI calls on the Government to announce a permanent replacement for this scheme. Because if businesses struggle with cashflow, it will be much more difficult for them to cope with the current pressures.
  6. Take industry concerns over labour shortages seriously and take action by creating new labour shortage occupation lists and adding obvious shortages, like aviation.
  7. To further alleviate the labour shortages issues, the CBI calls on the Government to add more flexibility to the apprenticeship levy for one year, with immediate effect. Thereby allowing all UK employers to use the levy funds to resolve labour shortages.

The CBI believes that if the Government acts now and implements these seven interventions, a recession can be averted.

CBI’s Long-Term Outlook

While the CBI’s assessment of the current situation is gloomy, its long-term outlook is no better. While the business group expects business investment to continue to grow until mid-2023, but thereafter, it predicts investment to fall.

The reason for this fall is the end of the Government’s super-deduction relief. The CBI expects business investment to be 7% below pre-Covid levels at the end of their forecast.

Furthermore, by the end of 2023, the group expects GDP to still be 5% below the pre-Covid trend. Equally, productivity growth is expected to remain 17% below its pre-2008 trend at the end of 2023.

The CBI’s forecast shows why they are urging the Government to act now before it is too late to avert a recession.

Share on: