The British economy faces a decade of lost growth unless the government takes action on investment tax relief, the Northern Ireland protocol and a shrinking workforce, the Confederation of British Industry (CBI) said.
In its latest forecast, the CBI said the UK has already fallen into a “short and shallow” recession that could leave business investment 9 percent below 2019 levels and productivity 2 percent below its pre-pandemic trend at the end of 2024.
CBI director-general Tony Danker said the UK seems to be retreating from priorities raised by British Prime Minister Rishi Sunak at his Mais Lecture in February, when he was chancellor of the exchequer, and is now removing incentives to invest and innovate, abandoning any agenda for growth.
Photo: Reuters
“Britain is in stagflation — with rocketing inflation, negative growth, falling productivity and business investment,” Danker said. “Firms see potential growth opportunities, but a lack of ‘reasons to believe’ are causing them to pause investing in 2023. Government can change this. We will see a lost decade of growth if action isn’t taken.”
The bleak outlook accompanied its forecast for the economy to shrink 0.4 percent next year as a cost of living crisis hammers household spending and interest rates rise to 4 percent.
GDP is expected to recover in 2024 with growth of 1.6 percent, it said.
Unemployment in the CBI’s outlook would rise by about 500,000 to 5 percent next year from 3.6 percent, while inflation, currently at 11.1 percent, would squeeze household incomes throughout next year and remain above target at 2.6 percent at the end of 2024.
The CBI expects the UK to suffer the second-worst recession of major economies after Germany.
Persistent weak productivity and business investment “doesn’t bode well for the country’s potential to grow,” it said.
Danker said the government can take action to restore confidence among businesses and boost growth, chiefly through a massive tax break on investment.
The corporation tax super-
deduction expires in April, and the tax rate rises 6 percentage points to 25 percent.
The CBI has called for the replacement of the super-deduction with full-expensing, under which every penny invested in plant and machinery can be deducted from taxable profits.
It would cost ￡10 billion (US$12.27 billion) in the first year, but have no fiscal cost in the longer term, CBI chief economist Rain Newton-Smith said.
The tax break would unlock an extra ￡50 billion in capital investment a year by the end of the decade and add a quarter of a percentage point to the sustainable UK growth rate, the CBI said.
Danker said that time is running out.
Last month’s fiscal statement, at which British Chancellor of the Exchequer Jeremy Hunt announced ￡55 billion of savings to repair the public finances, is necessary to ensure economic stability, Danker said, but added that “the country does not have a plan for growth.”
A plan needs to be built around boosting productivity and increasing the labor supply, he said.
The UK is the only major advanced economy with fewer people in work than before the pandemic.
“We have higher levels of long-term sick than other countries, and our healthcare system is obviously under strain,” Danker said. “That’s a particular British circumstance that needs a particularly British response.”
“We’ve talked to government about providing incentives for occupational health, private or otherwise, to get workers back into work. At the moment, the government is relying on the NHS. I don’t think that’s credible, given the state of the NHS,” he said.
Fixing the Northern Ireland Protocol, the controversial post-Brexit arrangement governing trade at the border between Northern Ireland and the Republic of Ireland, which remains the main source of tension with the EU, would boost growth by bringing the UK closer to the EU, Danker said.
“Once we resolve the protocol, then you start to open up all the other opportunities areas,” he said.
IN THE AIR: While most companies said they were committed to North American operations, some added that production and costs would depend on the outcome of a US trade probe Leading local contract electronics makers Wistron Corp (緯創), Quanta Computer Inc (廣達), Inventec Corp (英業達) and Compal Electronics Inc (仁寶) are to maintain their North American expansion plans, despite Washington’s 20 percent tariff on Taiwanese goods. Wistron said it has long maintained a presence in the US, while distributing production across Taiwan, North America, Southeast Asia and Europe. The company is in talks with customers to align capacity with their site preferences, a company official told the Taipei Times by telephone on Friday. The company is still in talks with clients over who would bear the tariff costs, with the outcome pending further
WEAKER ACTIVITY: The sharpest deterioration was seen in the electronics and optical components sector, with the production index falling 13.2 points to 44.5 Taiwan’s manufacturing sector last month contracted for a second consecutive month, with the purchasing managers’ index (PMI) slipping to 48, reflecting ongoing caution over trade uncertainties, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. The decline reflects growing caution among companies amid uncertainty surrounding US tariffs, semiconductor duties and automotive import levies, and it is also likely linked to fading front-loading activity, CIER president Lien Hsien-ming (連賢明) said. “Some clients have started shifting orders to Southeast Asian countries where tariff regimes are already clear,” Lien told a news conference. Firms across the supply chain are also lowering stock levels to mitigate
NEGOTIATIONS: Semiconductors play an outsized role in Taiwan’s industrial and economic development and are a major driver of the Taiwan-US trade imbalance With US President Donald Trump threatening to impose tariffs on semiconductors, Taiwan is expected to face a significant challenge, as information and communications technology (ICT) products account for more than 70 percent of its exports to the US, Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) president Lien Hsien-ming (連賢明) said on Friday. Compared with other countries, semiconductors play a disproportionately large role in Taiwan’s industrial and economic development, Lien said. As the sixth-largest contributor to the US trade deficit, Taiwan recorded a US$73.9 billion trade surplus with the US last year — up from US$47.8 billion in 2023 — driven by strong
RESHAPING COMMERCE: Major industrialized economies accepted 15 percent duties on their products, while charges on items from Mexico, Canada and China are even bigger US President Donald Trump has unveiled a slew of new tariffs that boosted the average US rate on goods from across the world, forging ahead with his turbulent effort to reshape international commerce. The baseline rates for many trading partners remain unchanged at 10 percent from the duties Trump imposed in April, easing the worst fears of investors after the president had previously said they could double. Yet his move to raise tariffs on some Canadian goods to 35 percent threatens to inject fresh tensions into an already strained relationship, while nations such as Switzerland and New Zealand also saw increased
RSS