No-deal Brexit would worsen UK productivity crisis, CBI warns
UK business investment will be nine per cent below its pre-coronavirus level by the end of 2022, causing “long-term scarring” and the country’s productivity crisis to drag on, the CBI has predicted.
The business lobby group said that a no-deal Brexit would make the situation even worse, causing more uncertainty and disruption for businesses while denting the economy.
The bleak predictions came as the CBI laid out its economic forecasts for the next two years. It said it expected the economy to shrink 11.1 per cent this year – its worst contraction since 1709. It will then grow six per cent next year, the group said.
However, the CBI said unemployment will be limited by government support schemes. It predicted joblessness will peak at 7.3 per cent next year. That is well below the eight per cent plus seen after the financial crisis.
That would put around 2.5m people out of work, lower than the Office for Budget Responsibility’s prediction of 2.6m.
The CBI focused in particular on business investment, which it predicted will plunge by 17.5 per cent this year and then shrink again – by 0.6 per cent – in 2021.
It will then grow by 9.3 per cent in 2022. But that would still leave investment around nine per cent lower than before the pandemic.
Alpesh Paleja, economist at the CBI, said uncertainty about the future will hold back the recovery in investment. For example, companies are not sure whether changes to ways of working will persist.
“That does already follow a number of years in which business investment was already quite weak, in part linked to persistent uncertainty around Brexit,” he said.
This “longer-term scarring” represents “a significant hit to the economy’s productive potential,” Paleja said.
A lack of investment is set to hold back productivity – usually defined as output per hour worked – the CBI said. It would mean firms are not using the latest technology or increasing employee training.
Coronavirus to hit productivity after ‘lost decade’
It comes after a “lost decade” of productivity growth, which is the key to long-term economic expansion. The lost decade has contributed to stagnating wages in the UK.
The CBI said the government should focus on boosting Britain’s productivity. It recommended cuts to business rates to free up cash for investment. And it said the government should give “productivity vouchers” to businesses to help them innovate and invest in technology.
But it said avoiding a no-deal Brexit was the immediate priority. Such an outcome would lead to higher tariffs on trade and more business uncertainty, it said. It would cause GDP to be one per cent smaller than it would have been by the end of 2022, the CBI said.
And Paleja said a no-deal outcome would also cause a “much longer-term hit to growth potential and productivity”.
Tony Danker, the new CBI director general, said: “We simply must find new ways to get businesses investing at the start of 2021 if we are to fast-forward the recovery.
“We’ve had great news on vaccines this week. But if we are to be masters of our own destiny then we must act decisively to rebuild a better economy.”