# UK economy to shrink in 2023, risks ‘lost decade’: CBI
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-12-05
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: CBI predicts Britain stagflation in 2023
Meta Description: According to CBI, Britain faces stagflation with high inflation, negative growth, and falling productivity. Urgent government action needed to prevent a lost
URL: https://financedigest.com/uk-economy-to-shrink-in-2023-risks-lost-decade-cbihtml

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By David Milliken

LONDON (Reuters) – Britain’s economy is on course to shrink 0.4% next year as inflation remains high and companies put investment on hold, with gloomy implications for longer-term growth, the Confederation of Business Industry forecast on Monday.

“Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business [investment.](https://www.financedigest.com/intel-facility-is-largest-greenfield-investment-in-poland-pm-says.html) Firms [see potential growth](https://www.financedigest.com/wto-sees-subpar-2023-trade-growth-with-multiple-risks.html "WTO sees “subpar” 2023 trade growth with multiple risks") opportunities but … headwinds are causing them to pause investing in 2023,” CBI Director-General Tony Danker said.

The CBI’s forecast marks a sharp downgrade from its last forecast in June, when it predicted growth of 1.0% for 2023, and it does not expect gross domestic product (GDP) to return to its [pre-COVID level](https://www.financedigest.com/foreign-tourism-to-portugal-surpasses-pre-covid-levels-in-july.html "Foreign tourism to Portugal surpasses pre-COVID levels in July") until mid-2024.

Britain has been hit hard by a surge in natural gas prices following Russia’s invasion of Ukraine, as well as an incomplete labour market recovery after the COVID-19 [pandemic and persistently weak investment](https://www.financedigest.com/3-investing-lessons-you-can-learn-from-still-evolving-pandemic.html "3 Investing lessons you can learn from still-evolving pandemic") and productivity.

[Unemployment would rise](https://www.financedigest.com/u-s-job-growth-picks-up-in-june-unemployment-rate-rises-to-5-9.html "U.S. job growth picks up in June; unemployment rate rises to 5.9%") to peak at 5.0% in late 2023 and early 2024, up from 3.6% currently, the CBI said.

British [inflation hit](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc-2.html "UK shop price inflation hits record 8% in January: BRC") a 41-year high of 11.1% in October, sharply squeezing consumer demand, and the [CBI](https://www.financedigest.com/uk-manufacturers-see-lowest-inflation-since-feb-2021-cbi.html) predicts it will be slow to fall, averaging 6.7% next year and 2.9% in 2024.

The CBI’s [GDP forecast](https://www.financedigest.com/german-govt-to-slightly-raise-2023-gdp-forecast-sources.html "German govt to slightly raise 2023 GDP forecast – sources") is less gloomy than that of the British government’s Office for Budget Responsibility – which last month forecast a 1.4% decline for 2023.

But the CBI forecast is in line with the Organisation for Economic Co-operation and Development (OECD), which [expects Britain to be Europe’s weakest performing economy](https://www.financedigest.com/german-economy-expected-to-skirt-recession-economy-ministry-report.html "German economy expected to skirt recession – economy ministry report") bar Russia next year.

The CBI forecast business investment at the end of 2024 will be 9% below its [pre-pandemic level](https://www.financedigest.com/fraport-sees-2023-passenger-traffic-at-80-90-of-pre-pandemic-levels.html "Fraport sees 2023 passenger traffic at 80-90% of pre-pandemic levels"), and output per worker 2% lower.

To avoid this, the CBI called on the government to make [Britain’s post-Brexit work visa system more flexible](https://www.financedigest.com/britain-urges-banks-to-offer-mortgage-flexibility-in-cost-of-living-crisis.html "Britain urges banks to offer mortgage flexibility in cost-of-living crisis"), end what it sees as an effective ban on constructing onshore wind turbines, and give greater tax incentives for investment.

We will [see a lost decade of growth](https://www.financedigest.com/russias-rosatom-sees-2022-exports-growth-at-15-report.html "Russia’s Rosatom sees 2022 exports growth at 15% – report") 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](https://www.financedigest.com/people-need-people-humanising-the-digital-banking-experience.html "People need People – Humanising the digital banking experience"), nor the productivity,” Danker said.

(Reporting by David Milliken; editing by Diane Craft)


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