Investment levels plummeting worst since the pandemic, as per theClaims of the CBI
Revamped Initiative, Rangers of Red Tape
Straight up, Chancellor Rachel Reeves' grand slam tax boost on the workforce is causing a stir, nudging corporate investment to its worst five-year stretch—and that ain't great news for the Confederation of British Industry (CBI)'s latest economic take.
The CBI's looking at a mere UK growth of 1.2% this year and an even slower 1% in 2026—downgrades on their predictions from last December. They've just released a report stating that company investment will see a downturn in the third quarter of this year and a drop at the start of next.
Early data from the Office for National Statistics (ONS) showed an increase of 5.9% at the beginning of the year, but firms only stockpiled aircraft and tech gear—the real investment plans are apparently still looking lackluster.
CBI economists warn that these underlying investment plans are in a funk and that the gloom will show up in the official data later this year. Higher National Insurance Contributions (NICs) are weighing heavy on the jobs market, restraining household consumption, despite inflation easing and interest rates predicted to decline to only 3.5% by the midpoint of 2023.
NICs: The Grim Reaper of Economic Growth?
The Office for Budget Responsibility (OBR) might need to revise productivity predictions if the CBI's forecasts come to light. With lower capital spending among firms, levels are likely to stay below pre-Covid benchmarks.
The OBR has overestimated the UK's post-2020 recovery in growth—their latest fiscal outlook report suggests that a continuation of current trends would see output fall 3.2% lower than projected, leading to a black hole in public finances amounting to 1.4% of GDP by 2030.
According to the CBI, productivity is unlikely to rebound in the short term, increasing the risk for Reeves' effort to uphold her £9.9bn fiscal buffer. Shadow Chancellor Mel Stride countered that the CBI's report proves Labour's taxes are "killing growth."
"Rachel Reeves declared to the CBI that she's 'not coming back with more borrowing or more taxes'—but she's painted herself into a corner, and we know she has a secret plan to raise taxes," he said. "Don't fool yourself—more taxes are on their way."
A Treasury spokesperson defended the government's recent spending commitments, stating they were "investing in Britain's renewal."
"The Spending Review charted our investment in city region transport, affordable homes, and Sizewell C. We've also clinched deals with the EU, US, and India to help lower costs for businesses and stabilized the public finances, enabling interest rates to plummet four times since July."
CBI economist Louise Hellem pointed out that the uncertainty surrounding global conflicts and trade added to the somber mood brought on by the increased employment costs borne by UK companies. She emphasized the importance of the government supporting businesses with all the assistance at its disposal.
"The Spending Review marked the initial payment for embedding the growth mission into government priorities, with targeted investments that prop up the long-term economy's ceiling," Hellem said. "But remember: the innovation, investment, and jobs necessary for growth come from businesses—not Whitehall—and the government must work alongside businesses to establish the right environment to accelerate economic progress."
The upcoming industrial strategy offers an opportunity for the government to demonstrate its commitment to growth, as firms expect to hear an inspiring narrative on which sectors of the UK economy should receive priority attention.
"A crucial gap remains in the absence of a coherent people strategy to ensure our industries have the talent and labor they require to seize growth opportunities," Hellem cautioned.
"Boosting investment through a comprehensive skills strategy, funding the growth and skills levy, reducing exorbitant energy costs for UK firms, and publishing a national strategy on tech adoption could help to establish a revitalized partnership model for effective collaboration between both government and business."
- The CBI's report suggests that the increase in taxes, such as National Insurance Contributions (NICs), could negatively impact business investment, which might lead to a slower economic growth.
- The Office for Budget Responsibility (OBR) may need to reconsider its productivity predictions due to the anticipated decrease in capital spending among businesses, which might prevent the economy from reaching pre-Covid levels.
- To stimulate growth, the government should focus on boosting investment through initiatives like a comprehensive skills strategy, funding the growth and skills levy, reducing energy costs for businesses, and publishing a national strategy on tech adoption, as well as creating a coherent people strategy to provide industries with the necessary talent and labor.
