CBI: Government must act now on economy to prevent recession

Urgent action is needed from the government to revive growth otherwise the UK will plunge into a recession.

That’s the warning today from the Confederation of British Industry (CBI), the country’s biggest business group.

Without a fresh package of measures before the summer parliamentary recess to boost business confidence, a recession will be “a very live concern,” according to Tony Danker, director general of the CBI.  

Britain is suffering from a toxic cost of living crisis that is sending a chill through households and businesses.

Consumers are expected to cut spending from the current quarter through to the first three months of next year in response to real incomes falling 2.3 per cent in 2022, the fastest rate on record.

Rampant inflation, currently running at a 40-year high of nine per cent and expected to top 10 per cent later this year, will cause “households to go into recession,” Danker added.

“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,” he said.

The CBI thinks the economy will grow 1.4 percentage points slower than first thought this year, expanding 3.7 per cent and just one per cent next year.

Almost all growth in 2022 is concentrated in the first quarter, meaning the economy is already flat lining.

The projections chime with a bleak warning last week from the Organisation for Economic Co-operation and Development, which said in 2023 only Russia would register weaker growth than the UK in the G20.

A sharp rise in business investment driven by chancellor Rishi Sunak’s super-deduction – which allows firms to deduct 130 per cent of the value of qualifying spending from their tax bill – has been “one of the only reasons we have staved off the threat of recession for now,” Danker said.

The uptick in capital spending caused by the super-deduction indicates giving firms tax reliefs can incentivise them to invest.

The CBI said Sunak must announce a permanent successor to the super-deduction immediately to inject confidence into British businesses, otherwise capital spending will collapse.

Firms have retrenched in response to Russia’s invasion of Ukraine, high inflation and ongoing supply chain disruption souring the trading environment, dampening the UK’s growth prospects.

“We need to act now to install confidence. This can wait no longer,” Danker said. 

The CBI also recommended the government draw up a new list of sectors suffering from labour shortages and allow all businesses to use funds from the apprenticeship levy to step up hiring.

Danker said finding workers is even more challenging than managing inflation for businesses.

A treasury spokesperson said: “While we can’t shield everyone from all of the global challenges we face, we’re doing everything we can to support British businesses in the months ahead.”

“Earlier this year we cut taxes for hundreds of thousands of businesses through an increase to the Employment Allowance, slashed fuel duty and have halved business rates for eligible high street firms. And we continue to support growth through tax incentives including the Annual Investment Allowance and the super-deduction, the biggest two-year business tax cut in modern British history.”

“The Chancellor has made clear he will reform and cut taxes on investment in the autumn to spur growth and productivity – and we’re currently working with industry on how best to do this.”