LUCKNOW (CoinChapter): The United Kingdom faces a potential decade of lost growth, the Confederation of British Industry warned markets on Dec 5.
“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 the people we need, nor the productivity”, said CBI Director-General Tony Danker. The CBI lobbies domestic businesses on national and international issues.
The Director-General’s warning comes when high inflation, negative growth, falling productivity, and business investment have wreaked havoc on UK’s economic output.
The CBI expects the UK economy to shrink by 0.4% next year. It also expects UK’s unemployment to rise to 5.0% in late 2023- early 2024 and does not expect the region’s GDP to return to its pre-COVID level until mid-2024.
CBI’s warning comes a few days after a Bank of England analyst said that higher interest rates, which are used to counter inflation, could lead to a deeper and longer recession. Similar sentiments were echoed by the Organization for Economic Co-operation and Development (OECD), which expects Britain to be Europe’s weakest economy next year based on GDP forecasts.
High Inflation, Rising Unemployment Culprits
Notably, consumer prices in the UK are currently hovering around their highest levels in the last 41 years. For example, in October, the UK’s consumer price index (CPI), a key inflation gauge, spiked by 9.9% year-on-year.
High consumer prices are also eroding the value of paychecks, which is why the UK’s labor market is not as plush as it once was. In August, Britain’s unemployment rate rose to 3.6% while job vacancies fell for the fifth report.
Higher living costs and a contracting labor market have forced thousands to leave the UK and look for opportunities elsewhere in Europe.
“Job vacancies continue to fall back from their recent peak, with increasing numbers of employers now telling us that economic pressures are a factor in their decision to hold back on recruitment,” an analyst told Reuters.
Since the COVID-19 pandemic and Russia’s war on Ukraine, markets worldwide have had to cope with soaring energy prices. Furthermore, the high demand for natural gas in Asia has pushed down supplies to Europe and Britain.
Such effects have hurt the UK, which imports significant oil and gas to meet local demand.
UK Business Activity Dips in November
Meanwhile, the service sector in the UK, which accounts for 79% of total UK economic output, has suffered xx.
A report showed that in November, new business volumes in the service sector fell to their lowest levels since January 2021. Ongoing economic uncertainty and cost of living challenges weighed on discretionary spending, causing business activity to shrink.
“An overall gloomy mood prevails to restrain business optimism at one of the lowest levels seen over the past decade…clearly, risks to the near-term outlook remain tilted to the downside,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
A weakening economy also weighed on UK’s private sector output, which fell for a fourth consecutive month in November. The report stated that incoming new business volumes remained mired in contraction territory, declining at the fastest rate for 22 months.
