UK Economy to Shrink in 2023
Britain's economy will shrink by 0.4% next year as inflation remains high and companies hold back on investment, which will have bleak implications for long-term growth, predicted the Confederation of Business Industry (CBI).
"The UK is in stagflation - with rising inflation, negative growth, falling productivity and business investment. Firms see potential growth opportunities, but ... headwinds are causing them to hold back on investment in 2023," CBI director-general Tony Danker said. .
The forecast marked a sharp drop from the last one in June, when it predicted growth of 1.0% in 2023.
Britain has been hit hard by a sharp rise in natural gas prices following Russia's invasion of Ukraine, as well as an incomplete labor market recovery from the COVID-19 pandemic and persistently weak investment and productivity.
According to the CBI, unemployment will rise and peak from 3.6% currently to 5.0% in late 2023 and early 2024.
British inflation hit a 41-year high of 11.1% in October, which has sharply squeezed consumption, and the organization predicts it will fall slowly, reaching an average of 6.7% next year and 2.9% in 2024.
The GDP forecast is not as bleak as that of the UK government's Office for Budget Responsibility, which last month predicted a 1.4% decline in 2023.
But the CBI's forecast is in line with that of the Organization for Economic Co-operation and Development (OECD), which expects Britain to be the worst-performing economy in Europe next year. The CBI predicts that business investment at the end of 2024 will be 9% below the pre-pandemic level and output per worker 2% below.
To avoid this, the CBI called on the government to make Britain's post-Brexit work visa system more flexible and provide greater tax incentives for investment.
"If no action is taken, we will see a decade of lost growth. GDP is a simple multiplier of two factors: people and their productivity. But we don't have the people we need, nor the productivity," Danker said.
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