Booster is essential for the UK’s growth
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CBI has forecasted the need for a booster for business investment to support sustainable growth.
The latest economic forecast reveals that the UK’s foundations for economic recovery are firm, despite supply challenges. However, rising costs and shortages have grown since June alongside poor productivity.
The CBI is forecasting 6.9% growth in GDP in 2021 and 5.1% in 2022, revised down from 8.2% and 6.1% respectively.
The forecast presents that business investment has recovered slightly and it will rise briefly above its pre-pandemic level at the end of 2022. However, this recovery is short-lived as capital spending will fall in mid-2023. This is due to super-deduction coming to an end and the rise in corporation tax. CBI say therefore business investment will continue to lag.
Tony Danker, CBI Director-General, said: “The super-deduction is a welcome catalyst, but a one-hit-wonder isn’t enough to make up for four decades of underperforming business investment. We must build on its success with targeted measures encouraging the scale of investment we need, particularly in green technologies. A booster for growth is needed to protect and build on our recovery.
“But this isn’t just a challenge for the government. It’s also up to businesses to step up and be part of the solution. Investment in technology and skills are among the most important steps firms can take now that will power productivity growth.”
CBI expects supply chain frictions to disappear by the middle of next year and says that household spending remains the key driver of GDP growth, generating 90% of growth in 2022 and two-thirds in 2023.
Thanks to the government’s job retention scheme, CBI say the UK’s labour market has been resilient and helped save large-scale job losses. In addition, they say the unemployment rate will fall to 3.8% at the end of 2023.
For inflation, the forecast predicts it to peak at 5.2% in April 2022, remaining above the Bank of England’s 2% target until Spring 2023.
Rain Newton-Smith, CBI Chief Economist, said: “We expect a pretty firm economic recovery ahead, though understandably the emergence of Omicron poses another downside risk to our forecast.
“Ultimately this underscores the need for equitable distribution of vaccines across the world – supporting lives, livelihoods and freeing our international travel sector, boosting trade too. The emphasis must be on testing and using all the tools at our disposal to keep as many global routes open as possible.
“Increasing exports is also a vital component of sustainable growth. Exporting companies are more productive, resilient and help create internationally competitive UK regions.
“Let us be candid: UK exports are being outpaced by our global peers which, if allowed to continue, will negatively impact our economy in the long term.”