Businesses will ‘lick their wounds’ after Budget, even if growth picks up
The Budget will boost growth but restrict business investment and contribute to higher unemployment, according to new forecasts from the British Chambers of Commerce (BCC).
The business group projected that growth will pick up to 1.3 per cent in 2025, rising to 1.5 per cent the year after. These were both upgrades on its previous estimates of 1.0 per cent and 1.1 per cent.
The BCC said the upgrades were driven by “increased levels of government spending” following the Budget.
However, it warned that the growth landscape “remains relatively weak”. In particular, business investment will “continue to struggle” as firms dealt with higher costs from the hike to employers’ national insurance.
Chancellor Rachel Reeves increased the levy by 1.2 per cent in the Budget, while also cutting the threshold at which employers have to start paying the tax.
Many businesses have warned the additional costs will force them to cut jobs, slash investment budgets and raise prices.
The BCC’s forecasts suggest business investment will increase by only 0.9 per cent next year, falling from around 1.5 per cent this year. It will then recover to 2.1 per cent in 2026.
The projections will be a concern for the government because encouraging investment is a core pillar of its growth strategy. In the election campaign, Labour pledged to pull “every available lever” to get businesses investing.
Private sector investment has consistently lagged peers, which many economists argue has contributed to the economy’s sluggish productivity growth over the past two decades.
Unemployment, meanwhile, is likely to rise to around 4.5 per cent by the end of next year, a slight increase on the BCC’s previous forecasts.
“Businesses are likely to face difficult decisions on recruitment going forward due to increased employment costs,” the forecast said.
Vicky Pryce, chair of the BCC’s economic advisory council, said that businesses will be “licking their wounds” following the Budget, even though higher government spending will “underpin” growth next year.
“The BCC forecast shows the likely impact of rising costs, from changes such as national insurance. This means business investment and jobs will be hit,” she added.