According to the Confederation of British Industry's (CBI) monthly growth indicator survey, UK private sector activity is expected to sharply decline over the next three months, with manufacturing predictions reaching their lowest level since May 2020. This forecast places significant pressure on Chancellor Rachel Reeves to prove the effectiveness of her economic growth plans in the new year.
Hiring Intentions and Output Face Major Cuts
The survey indicates that over the three months leading up to March 2024, businesses plan to significantly reduce their workforce, with hiring intentions dropping to the lowest point since October 2020. If this trend is realized, it will mark the largest decline in UK business activity in nearly four years. The CBI notes that all three major sectors expect output to fall in the first quarter, with manufacturing being particularly pessimistic.
Budget Policy Triggers Business Discontent
The CBI attributes part of the decline in business activity to the Treasury's budget measures, particularly the increase in corporate payroll tax. Chancellor Rachel Reeves has focused on raising fiscal revenue by increasing employers' national insurance contributions by £26 billion, a move considered to be limiting firms' willingness to hire and exacerbating an already weak demand environment. The CBI stated: "Businesses expect to reduce output and hiring, yet expectations for price growth remain firm. The measures announced in the budget exacerbate the uncertainty of economic activity."
Government and Opposition Response
In response, a spokesperson for the UK Treasury stated: "We have had to make difficult budget decisions to repair the economy and address the £22 billion fiscal deficit we inherited. We have achieved the economic stability that businesses urgently need."
However, Conservative Shadow Business Secretary Andrew Griffith warned that the survey increases the likelihood of the UK falling into a recession. He stated bluntly: "If the economic downturn predicted by the CBI materializes, it will be the result of policy missteps by Downing Street."
Outlook and Impact
As the first quarter of 2024 approaches, the challenges facing the UK economy are becoming increasingly apparent. The pessimistic attitudes of businesses towards hiring and output not only reflect the impact of budget policies but could also signal a broader trend of economic slowdown. In the future, finding a balance between fiscal stability and economic growth will be a crucial test for the UK government.
