UK economy heading for ‘worst of all worlds’, CBI warns – as businesses expect fall in activity
The UK economy is “headed for the worst of all worlds” as businesses expect activity to fall at the start of next year, according to the Confederation of British Industry (CBI).
The industry group’s growth indicator survey found that private sector firms expect to cut down on hiring, reduce output and for prices to rise in the first three months of 2025.
One of the main reasons given by businesses for the poor outlook was Chancellor Rachel Reeves‘ decision to raise employers’ national insurance contributions (NIC) – which is expected to raise around £25bn a year.
While the chancellor accepted the budget decision will not be “easy” for businesses, she said earlier this month the government “made a commitment during the general election… that we wouldn’t increase taxes on working people”.
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UK economy declined in October
Alpesh Paleja, the CBI’s interim deputy chief economist, said: “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.
“Businesses continue to cite the impact of measures announced in the budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.”
He added that firms are looking for Labour “to boost confidence and to give them a reason to invest” in 2025, “whether that’s long overdue moves to reform the apprenticeship levy, supporting the health of the workforce through increased occupational health incentives or a reform of business rates”.
The CBI’s poll, based on responses of 899 companies between 25 November and 12 December, also found expectations for economic growth were at their weakest since November 2022, in the aftermath of Liz Truss’s resignation as prime minister.
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It comes after the economy shrank by 0.1% in October, according to Office for National Statistics (ONS) figures, for the second month in a row.
Lucy Powell, leader of the House of Commons, told Sky News’ Sunday Morning with Trevor Phillips the ONS figures were “disappointing” and said that “of course we want to see these things (economic growth) happening faster”.
The Labour MP for Manchester Central said, however: “This is a bit like turning round some huge oil tanker…
“We take a fundamental view here about fixing the foundations, which is about trying to bring some economic stability, which means making sure that the budget adds up, which is something that we didn’t inherit.
“We inherited this big black hole in the public finances which we had to put right.”
Ms Powell then defended raising employers’ NICs, acknowledging while “it was a difficult decision,” it was made “to get money into the front line” of the NHS and other services.
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Responding to the CBI’s survey, shadow business secretary Andrew Griffith said: “Since taking office, the chancellor has made this country a hostile climate for aspiration, for investment and for growth.”
The Conservative MP added: “Rachel Reeves’s tax-raising spree and trash-talking her economic inheritance are literally killing businesses and jobs.
“If there is a recession – and based on these CBI expectations that seems increasingly likely – it will be one made in Downing Street. Labour needs to urgently change course before the damage they are doing becomes even greater.”
An amber warning has been issued for snow in a part of the UK, likely to cause travel delays and “stranding some vehicles and passengers”.
The warning, which covers south west England, also warns some rural communities could become cut off and is in place until 2pm this evening.
Pic: Met Office
There is also a yellow weather warning for snow covering the southern counties of England until midnight on Wednesday.
The warning stretches from Kent to Cornwall and up to south London and the Met Office said between 2cm and 5cm of snow could accumulate fairly widely, with as much as 10cm over higher ground.
This week is expected to see the coldest nights of the year, with temperatures potentially reaching -14C on Wednesday night and -16C on Thursday night, both in the North East of England and Scotland, the Met Office said.
Weather warnings issued on Tuesday for snow and ice covering the parts of Wales, the North West of England, west and northern parts of Scotland as well as Northern Ireland will remain in place until midnight tomorrow.
The forecaster said some roads and railways are likely to be affected and there could be icy patches on untreated roads.
Pics: AP
Meanwhile the Environment Agency has said at least 300 properties have flooded across England since New Year’s Eve. It estimates more than 41,000 properties have been protected.
Heavy rainfall over the New Year caused significant river and surface water flooding across the North West of England and Yorkshire and snowmelt has brought further disruption to parts of England, particularly the Midlands, the agency said.
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Floods minister Emma Hardy said: “My sympathies go out to the people, businesses and communities impacted by the recent flooding across the country.
“I want to express my heartfelt thanks for the vital work that the Environment Agency and emergency services are doing to keep people safe. People must continue to follow their advice and sign up for flood warnings.”
Flood warnings
Some 100 flood warnings were in force across England on Wednesday, with people urged to remain vigilant over the coming days.
A danger-to-life warning was issued on Tuesday morning for the River Soar near Barrow upon Soar, Leicestershire, but was later removed.
People living in caravan parks in the area were urged by the Environment Agency to act, with a large-scale evacuation needed to save lives.
Firefighters have rescued dozens of people across Leicestershire since Monday, Leicestershire Fire and Rescue Service said.
Hundreds of schools were closed across the UK, with road and rail links blocked, as Manchester, Bristol and Liverpool John Lennon airports suspended flights because of the conditions.
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