Britain is facing a ‘recession made in Downing Street‘ next year – as business chiefs warned that Labour‘s tax hikes were hitting jobs, investment and growth.
The Confederation of British Industry said the economy was heading for the ‘worst of all worlds’ as businesses grapple with Chancellor Rachel Reeves‘ ‘tax-bomb’ Budget.
The employers’ organisation said the outlook for the start of 2025 was ‘firmly negative’ across all main sectors, including manufacturing, services and retail – with firms directly blaming the £25 billion Budget hike in employers’ National Insurance.
Alpesh Paleja, the confederation’s deputy chief economist, said: ‘There is little festive cheer in our latest surveys, which suggest that the economy is headed for – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.
‘Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer National Insurance contributions – exacerbating an already tepid demand environment.’
The warning follows recent figures showing the economy shrank for the second month in a row in October, causing the Bank of England to cut its growth forecast for the final quarter of this year to zero.
The Bank’s former deputy governor, Sir Charlie Bean, yesterday said the Office for Budget Responsibility (OBR) was also likely to cut its official forecasts for next year, having previously predicted growth of 2 per cent.
He told Sky News: ‘If the OBR were to conduct new forecasts now, they would be downgrading that growth forecast simply because they have information about growth at the back end of this year, which they didn’t previously have. So it is reasonable to expect them to project lower growth for 2025.’
Chancellor Rachel Reeves visits the Leeds Corn Exchange on December 6
The CBI has said there is ‘little festive cheer’, with its surveys suggesting that the economy is heading for the ‘worst of all worlds’ (file photo)
He said the negative impact of Labour’s ‘doom and gloom’ narrative running up to the Budget ‘was compounded by choosing to levy the extra taxes necessary to pay for our current spending on to business’.
Tory business spokesman Andrew Griffith accused Ms Reeves of creating ‘a hostile climate for aspiration, for investment, and for growth’.
He added: ‘The Chancellor’s tax-raising spree and trash-talking her economic inheritance is literally killing businesses and jobs.
‘If there is a recession – and based on these CBI expectations that seems increasingly likely – it will be one made in Downing Street. Labour need to urgently change course before the damage they are doing becomes even greater.’
Commons leader Lucy Powell yesterday admitted that the NI raid at the Budget had created ‘consequences for business’ and that growth figures were ‘disappointing’.
But she added: ‘We took the decision to put a record level of investment into our National Health Service to bring down those waiting lists… because if you can’t work, you can’t go to work.
‘And these chronic factors in our economy, lack of housing supply, a sick economy, a sick population, a poor education, poor skills, are what is holding our country back.’
A CBI survey of 899 firms painted a downbeat picture of the country’s economic future. It found that private sector activity is expected to fall in the first three months of next year, with business optimism at its weakest since November 2022, after Liz Truss’s mini-Budget.
The CBI said businesses were saying private sector employment ‘will be cut sharply’ in the first quarter of the year.
Hiring intentions are at their weakest since October 2020 when Britain was in the grip of the Covid pandemic, and almost half of firms (48 per cent) are planning to cut staff numbers, while 62 per cent have scaled back pre-Budget hiring plans.
Employers also issued a warning about inflation, saying the NI rise would have a knock-on impact on prices and that wage growth remained ‘higher than the level consistent’ with the Bank of England’s 2 per cent target. Official figures last week showed that inflation rose for the second month running to 2.6 per cent.
Tory business spokesperson Andrew Griffith said the country could be heading for a ‘recession… made in Downing Street’
The gloomy outlook may see retailers left with no choice but to raise prices or cut costs, including scaling back on employment and closing stores (file photo)
Last night, the British Retail Consortium said consumer confidence about the economy had ‘nosedived’ since the Budget.
Chief executive Helen Dickinson said sales were unable to keep pace with the rising costs produced by the Budget, meaning retailers ‘will have no choice but to raise prices or cut costs – closing stores and freezing recruitment’.
The gloomy outlook will add to the grim mood at the top of government as ministers contemplate the collapse in Labour’s poll ratings.
One minister told The Sunday Times that Labour’s first five months in power had been characterised by ‘drift and dysfunction’. Another described it as ‘the worst start by any incoming government’ in living memory.