The CBI is urging the chancellor to provide investment in infrastructure and research and development in the upcoming Autumn Statement, to offset its lower predictions of GDP growth.
The business group has revised its GDP growth forecasts down from two per cent to 1.3 per cent for next year and it expects business uncertainty to hit investment in the coming months. Rising inflation, driven by huge knocks to the pound, is expected to affect household spending, and price rises for imported goods are expected to take a hike.
The CBI wants the chancellor to increase public sector investment to two per cent and deliver on previous infrastructure commitments to "instil confidence" when he delivers the Autumn Statement later this month. It also urges Philip Hammond to commit to spend three per cent of GDP on research and development by 2025 to help "increase productivity and raise prosperity" right across the UK.
“Successfully delivering on an ambitious domestic agenda is now more important than ever against the backdrop of forthcoming UK-EU negotiations, where the only certainty is their complexity," said Rain Newton-Smith, chief economist at the CBI.
He also calls on the chancellor to agree to put in place transitional arrangements for the City of London, to calm businesses fears that the economy could be driven off a cliff-edge after Brexit.
“On the negotiations businesses are seeking barrier and tariff-free access to the Single Market, as well as access to skills and labour from abroad," he added.
The UK's economic forecasts are faring better than expected, with 0.5 per cent growth in the economy last quarter reported last week.
However, the CBI expects inflation to breach the Monetary Policy Committee's two per cent target in the second quarter of next year, rising to 2.4 per cent by the end of 2017. Wage growth is expected to stay stubbornly low, with average earnings growth predicted to be 2.4 per cent next year.
Newton added that political speedbumps remain for the UK and Eurozone economy in the run up to Brexit negotiations, the Italian referendum and French and German general elections.
"“From a UK perspective we need to see fiscal moves buttress monetary policy, so the Government will need to set out an ambitious, pro-enterprise agenda that will get firms investing now, and lift productivity in the future across all UK regions while balancing the books over the longer term," he said.