As Christmas draws closer, the latest economic analysis by the British Chambers of Commerce, the Institute of Directors and the CBI suggests that business confidence is still in the doldrums and limited growth is expected next year.
The British Chambers of Commerce (BCC) has predicted that the UK economy will "remain in the slow lane" next year. It has amended its GDP forecast for 2023, predicting a growth rate of 0.6% for the year, dropping to 0.4% in 2024 and nudging up to 0.6% in 2025. It says that "prolonged high interest rates, trade barriers, particularly with the EU, and limits on consumer spending" are all feeding into a low growth climate.
Data from the Office for National Statistics (ONS) show the economy recovered from the pandemic much faster than originally estimated, however that momentum has now been lost says BCC. Although disposable incomes are now above pre-pandemic levels, households are spending less than they did then, suggesting high interest rates, inflation and global headwinds are weighing on consumer confidence.
"While it's welcome that GDP should continue to expand there is an underlying fragility that is eroding confidence. The government set out several pro-growth measures in the Autumn Statement, but businesses and consumers have had their fingers badly burned by the pandemic and ensuing economic shocks. It will take a Herculean effort to shift the dial on investment and consumer spending, against that background, and inject some much-needed vitality." Vicky Pryce, chair of the BCC Economic Advisory Council.
Business confidence remains low says IoD
The Institute of Directors (IoD) Directors' Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, rose only slightly last month - from a negative reading of -25 in October to -21 in November. Since plummeting in June, business confidence has been gradually ticking upwards over the past five months. However, the balance of optimism/pessimism remains firmly entrenched in negative territory.
The latest IoD findings show that:
- As usual, business leaders are more optimistic about the prospects for their own businesses than they are for the economy as a whole;
- "UK economic conditions" and "skills shortages" remain the top negative issues for business leaders; energy costs and business taxes are also big challenges;
- Wage cost pressures are easing, indicating that lower inflation and tighter interest rates are starting to impact on the labour market.
2020s have "yet to roar" says CBI
The CBI has said that "the UK is set for another year of weak growth over 2024 as significant headwinds continue to impact the UK economy". However, its GDP growth forecasts are slightly more optimistic than those of the British Chambers of Commerce. Following GDP growth of 0.6% in 2023, the CBI expects 0.8% growth in 2024, picking up to 1.6% in 2025.
Other key findings from the latest CBI forecast include:
- Growth in consumer spending will remain weak next year (0.4%, unchanged from 2023);
- The Bank of England's base rate is expected to stay at 5.25%;
- The labour market will remain tight, with unemployment set to peak at a historically low 5% in mid-2025;
- Inflation is set to stay above the Bank of England's 2% target over the coming year, ending 2024 at 2.5%;
- Sluggish growth will dampen business investment, which is set to fall by 5% in 2024.
Louise Hellem, CBI chief economist, said: "Let's not forget that even the weak growth we've seen is better than expectations of a recession this time last year. But that is by no means job done. Businesses are gearing up for another tough year ahead, with our forecast expecting weak growth to persist over 2024. Given that this is coming after an already challenging few years, it's clear that the 2020s have yet to roar."
Written by Rachel Miller.