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.
SEEKING CLARITY: Washington should not adopt measures that create uncertainties for ‘existing semiconductor investments,’ TSMC said referring to its US$165 billion in the US Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) told the US that any future tariffs on Taiwanese semiconductors could reduce demand for chips and derail its pledge to increase its investment in Arizona. “New import restrictions could jeopardize current US leadership in the competitive technology industry and create uncertainties for many committed semiconductor capital projects in the US, including TSMC Arizona’s significant investment plan in Phoenix,” the chipmaker wrote in a letter to the US Department of Commerce. TSMC issued the warning in response to a solicitation for comments by the department on a possible tariff on semiconductor imports by US President Donald Trump’s
The government has launched a three-pronged strategy to attract local and international talent, aiming to position Taiwan as a new global hub following Nvidia Corp’s announcement that it has chosen Taipei as the site of its Taiwan headquarters. Nvidia cofounder and CEO Jensen Huang (黃仁勳) on Monday last week announced during his keynote speech at the Computex trade show in Taipei that the Nvidia Constellation, the company’s planned Taiwan headquarters, would be located in the Beitou-Shilin Technology Park (北投士林科技園區) in Taipei. Huang’s decision to establish a base in Taiwan is “primarily due to Taiwan’s talent pool and its strength in the semiconductor
Industrial production expanded 22.31 percent annually last month to 107.51, as increases in demand for high-performance computing (HPC) and artificial intelligence (AI) applications drove demand for locally-made chips and components. The manufacturing production index climbed 23.68 percent year-on-year to 108.37, marking the 14th consecutive month of increase, the Ministry of Economic Affairs said. In the first four months of this year, industrial and manufacturing production indices expanded 14.31 percent and 15.22 percent year-on-year, ministry data showed. The growth momentum is to extend into this month, with the manufacturing production index expected to rise between 11 percent and 15.1 percent annually, Department of Statistics
An earnings report from semiconductor giant and artificial intelligence (AI) bellwether Nvidia Corp takes center stage for Wall Street this week, as stocks hit a speed bump of worries over US federal deficits driving up Treasury yields. US equities pulled back last week after a torrid rally, as investors turned their attention to tax and spending legislation poised to swell the US government’s US$36 trillion in debt. Long-dated US Treasury yields rose amid the fiscal worries, with the 30-year yield topping 5 percent and hitting its highest level since late 2023. Stocks were dealt another blow on Friday when US President Donald
RSS