In its latest forecast, the CBI said the UK has already fallen into a “short and shallow” recession that will leave business investment 9% below 2019 levels and productivity 2% below its pre-pandemic trend at the end of 2024.
The bleak outlook accompanied its forecast for the economy to shrink 0.4% next year as the cost of living crisis hammers household spending and interest rates rise to 4%. GDP recovers in 2024 with growth of 1.6%. The CBI’s bleak projections follow forecasts for an even deeper recession outlined by the Bank of England, the Office for Budget Responsibility and the Organization for Economic Cooperation and Development.
The CBI has called the super-deduction to be replaced with full-expensing, under which every penny invested in plant and machinery can be deducted from taxable profits. Rain Newton-Smith, the CBI chief economist, said it would cost £10-billion in the first year but have no fiscal cost in the longer term.
A plan needs to be built around boosting productivity and increasing labor supply, he said. The UK is the only major advanced economy with fewer people in work than before the pandemic. Fixing the Northern Ireland Protocol, the controversial post-Brexit arrangement governing trade at the border between Northern Ireland and the Republic of Ireland that remains the main source of tension with the European Union, would boost growth by bringing the UK closer to the EU.
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