CBI warns of ‘lost decade of growth’

With soaring inflation, a shrinking economy, and a drop in productivity and business investment, the UK is facing a decade of lost economic growth if action is not taken.

That’s the stark warning from business group the CBI, which has urged the Prime Minister and Chancellor to “use all levers at their disposal” to boost long-term growth.

It comes as the CBI downgraded its GDP growth forecast for 2023, saying that it now expects the UK economy to contract by 0.4% next year compared with its earlier forecast of 1.0% growth.

The organisation called on the government to address skill and worker shortages and unlock business investment through capital allowances and regulatory changes, such as removing the de facto ban on onshore wind, improving mobility to facilitate trade in services and updating the national planning policy framework.

“Firms see potential growth opportunities but a lack of ‘reasons to believe’ in the face of headwinds are causing them to pause investing in 2023,” explained CBI Director-General Tony Danker.

“Government can change this. Their action or inaction to support growth and investment will be a key determinant of whether recession is shallow or deep.

“We will see a lost decade of growth if action isn’t taken. GDP is a simple multiplier of two factors: people and their productivity. But we don’t have people we need, nor the productivity.”

Alpesh Paleja, lead economist at the CBI, added that weakness in productivity and business investment “appears to be bedding in” which does not bode well for living standards and the economy’s capacity to grow over the longer term.

“The time for action is now. The government should leverage more business investment to drive growth. Our analysis shows a permanent full allowances regime would unlock an extra £50bn in capital investment per year by the end of the decade.”

Free market alone will not end North-South divide, says CBI

Decades of neglect in parts of the UK have led to a “branch line economy”, according to the CBI.

At the the business group’s annual conference, director general Tony Danker said that economic growth must be spread more evenly around the UK rather than concentrated in south-east England.

The free market had failed to create prosperity across the country, he argued, adding that neither the UK government nor business can solve this problem alone.

The rise of new industries such as clean and renewable energy, biotechnology and cybersecurity provided the opportunity for a “new industrial revolution” across the UK, Danker said.

But he told the conference: “Simply saying the market will fix this is not good enough.

“I don’t know a country in the world — including, and indeed especially, the United States — where governments aren’t active in economic geography.”

He added that while it is businesses rather than government that create jobs and wealth, governments must also play their part to try to “make places better”.

The CBI says that four key elements are required to lift productivity in a given place and allow more areas to prosper: high-value sectors, high-value firms, high-value skills and higher business investment. And it stressed the importance of creating — or building on — clusters of economic activity in different parts of the country.

A new CBI Centre for Thriving Regions is being established to help co-ordinate private sector involvement behind the government’s Levelling Up agenda.

CBI calls for urgent action over labour shortages

Labour shortages risk delaying the UK’s economic recovery after the pandemic, the CBI has warned.

The business group said that labour supply problems could last for up to two years and will not be solved by the end of the Coronavirus Job Retention Scheme. The furlough scheme, which protected millions of jobs during the pandemic, is due to close on 30 September 2021.

According to the CBI, the challenge includes many skilled professions, extending well beyond the lack of HGV drivers that has dominated the headlines.

Matching up skills policies to roles with the highest unfilled vacancies, adding greater flexibility to the Apprenticeship Levy and using the government’s own skill-focused immigration levers to alleviate short-term pressures are three things the government can do now, the CBI said.

CBI director-general Tony Danker argued that labour shortages are already affecting business operations, and “standing firm and waiting for shortages to solve themselves” was no way to run an economy.

“The government’s ambition that the UK economy should become more high-skilled and productive is right,” he said. “But implying that this can be achieved overnight is simply wrong. And a refusal to deploy temporary and targeted interventions to enable economic recovery is self-defeating.

“The CBI has?heard from companies?actively cutting capacity?because they can’t meet demand,?like?the hoteliers limiting the number of bookable rooms because they don’t have enough housekeeping staff and can’t get linen laundered. Meanwhile, some restaurant owners have had to choose between lunchtime and evening services when trying to make the most of summer.

“It’s also visible?to consumers?when?lead-in times for purchases like kitchens or furniture double.”

Danker added: “Using existing levers at the UK’s control — like placing drivers, welders, butchers and bricklayers on the Shortage Occupation List — could make a real difference. The government promised an immigration system that would focus on the skills we need rather than unrestrained access to overseas labour. Yet here we have obvious and short-term skilled need but a system that can’t seem to respond.”

UK’s 0.3% GDP growth in Q1 welcomed by business groups

Business groups have given a cautious welcome to the announcement this morning that the UK has avoided a triple-dip recession, with the economy growing by an estimated 0.3% in the first quarter of 2013.

The increase was higher than expected and John Cridland, director general of the CBI, said it confirms the organisation’s view that 2013 will see real growth. After the pick-up in the services sector, the economy now needs a recovery in manufacturing output in the coming months, he added.

Cridland concluded by saying that the government must build on the emerging signs of confidence by getting behind Britain’s entrepreneurs and exporters.

David Kern, chief economist at the British Chambers of Commerce, pointed out that, although services output is now above its pre-recession levels from 2008, both construction and manufacturing are still lower.

“The main priority remains combining a realistic deficit cutting programme with policies that make it possible for the economy to achieve sustainable growth,” he said.

Meanwhile, Terry Scuoler, chief executive of EEF, the manufacturers’ organisation, highlighted the fact that the economic challenges faced by the UK are shared by much of the rest of the world, particularly Europe, and are “hampering manufacturing’s efforts to export our way to growth.”

Chancellor George Osborne responded to the GDP announcement by saying that the figures are an “encouraging sign” although Ed Balls, the shadow chancellor, argued that the economy is only “back to where it was six months ago.”

In its preliminary estimate for the quarter the Office for National Statistics (ONS) noted that GDP was 0.4% higher in the first three months of 2013 than in the third quarter of 2011, which means that it has been broadly flat over the last 18 months.

The most significant contribution to GDP growth in the first quarter of 2013 came from services, and there was a smaller contribution from production. These upward contributions were partly offset by a decline in construction output.

Overall, the bad weather in this year’s first quarter is thought to have had a limited impact on GDP growth. Evidence suggests that the snow and low temperatures reduced retail output in January and March but boosted demand for electricity and gas in February and March, which resulted in higher output in the energy supply industries.

Five years ago, before the global financial crisis led to a sharp fall in output, the UK economy peaked in the first quarter of 2008. The lowest level was registered in the second quarter of 2009. GDP fell 6.3% from peak to trough, the ONS said. In the first quarter of 2013 the UK’s GDP was estimated to be 2.6% below the 2008 peak.