The UK's main business organization, the Confederation of British Industry (CBI), released its latest economic outlook report on Wednesday, significantly lowering its predictions for the UK's economic growth in 2024 and 2026. The report highlighted that President Trump's tariff policy, rising domestic labor costs, and weak corporate investment willingness have contributed to the pessimistic outlook on economic growth.
CBI has downgraded its 2024 economic growth forecast from 1.6% to 1.2% and reduced the 2026 forecast from 1.5% to 1.0%. Although UK exports to the US account for only 7% of the total exports, CBI believes these tariffs may still exert indirect pressure on global supply chains and UK business activities.
Rising Costs Hit Investment, Business Confidence Remains Low
CBI emphasized that UK businesses are facing significantly rising costs associated with wages and social security. The implementation of the minimum wage standard and social security payment adjustments from April has tightened companies' budgets for hiring and expansion. CBI's chief economist, Louise Hellem, stated, "Companies are scaling back hiring plans and delaying fixed asset investment decisions."
She further pointed out, "Amid increased global uncertainty, rising employment costs, and squeezed corporate profit margins, the government must take decisive policy measures to establish a foundation for sustained long-term growth in the UK economy."
Oil Price Shock Not Yet Included, CBI to Continue Dynamic Adjustments
Notably, this economic forecast was released before the military conflict between Israel and Iran, which caused a sharp rise in international oil prices. CBI has activated a monitoring mechanism to track the potential impact of energy price fluctuations on UK businesses, households, and overall inflation. If the conflict develops further, the UK's import costs and energy bills may increase even more.
Inflation to Remain High in the Short Term, Interest Rate Adjustments Could Be Slower
CBI predicts that the UK inflation rate will remain above the Bank of England's 2% target in 2024, primarily due to rising household energy bills and regulatory water fee increases. By 2026, inflation is expected to decline to 2.5%, still higher than the target range.
Nevertheless, the trend of slowing wage growth, combined with weak economic growth, has led CBI to believe that the Bank of England will gradually reduce the benchmark interest rate from 4.25% to 3.5% by the end of 2025. This process will be very cautious to avoid raising prices again due to overly rapid easing.
Consumer Spending to Become the Main Growth Driver in the Future
CBI believes that household sectors will drive the core of UK economic growth in 2026. As inflation gradually eases and interest rates decrease, real disposable income for households is expected to rise, potentially boosting retail, services, and durable goods consumption. Hellem noted, "After a prolonged erosion by inflation, UK consumers will gradually regain confidence, fostering economic rebalancing."
However, she also emphasized that this optimistic scenario relies on consistent advancement of macro policies, especially with sustained efforts in taxation, investment incentives, and housing support policies.
Short and Medium-Term Challenges Remain Heavy, Policy-Making Faces Dual Pressures
CBI's latest forecast rings a warning bell for the UK government: amid global inflationary pressures, geopolitical risks, and domestic structural challenges, the UK economy has recovery potential but the path remains difficult. Currently, policymakers need to maintain a precise balance between supporting growth and maintaining price stability. For investors and businesses, more cautious and diversified strategies may become the mainstream thinking in the coming years.
