In its latest economic forecasts published today (11 December), the body predicted GDP growth for the UK would average 0.6% this year, before growing 0.8% in 2024 and 1.6% in 2025. Meanwhile, the labour market will remain “relatively tight”, it said, with unemployment peaking at 5% in mid-2025.
The CBI’s forecast was slightly more optimistic than the Office for Budget Responsibility’s, which last month forecast GDP growth of 0.7% in 2024 and 1.4% in 2025, while expecting unemployment to peak at 4.6%.
For the next two years, the CBI predicted the BoE’s bank rate of 5.25% is expected to stay at its current level throughout the entire period, in contrast to expectations from the market that the Bank will begin cutting rates sometime next year.
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Inflation is expected to stay above 2% throughout 2024, ending the year at 2.5% before falling to the BoE’s 2% target in the middle of 2025.
The CBI also found that sluggish GDP growth is expected to weigh on business investment, which is set to fall by 5% next year, while total capital spending is expected to decline 4.2% in 2024.
Globally, the group expects economic growth to remain “broadly constant”, at about 3% per year. However, it forecast prospects to “diverge notably” across the globe, with US growth averaging at 1.4% and the Eurozone’s at 0.7% next year, before converging in 2025 to 1.3% and 1.6%, respectively.
The poor growth in other developed nations is expected to temporarily depresses imports growth over 2024, leading to a small boost from net trade to GDP growth next year.
Despite this, UK exports are still expected to lag other advanced economies, and only reach their pre-pandemic level in the second half of 2025.
Louise Hellem, CBI chief economist, said: “Amid the sheer degree of headwinds that the economy has faced over the last couple of years, businesses and households have shown remarkable resilience. Let us not forget that even the weak growth we have seen is better than expectations of a recession this time last year.
“But that is by no means job done. Businesses are gearing up for another tough year ahead, with our forecast expecting weak growth to persist over 2024. Given that this is coming after an already challenging few years, it is clear that the 2020s have yet to roar.”
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Alpesh Paleja, CBI lead economist, added: “The economy has held its own over the last couple of years, but stagnation is nothing to write home about. While we expect growth to pick up eventually, it remains below the norm seen in the years prior to the pandemic.
“Risks to the outlook are also numerous. At home, the spectre of high inflation could linger for longer, and sluggish demand could mean that investment plans remain on hold.
“While we expect global growth to hold up, prospects in the Eurozone – our biggest trading partner – are notably weak. And global geopolitics remain febrile, which could stoke uncertainty further.”
