Businesses have issued a stark warning to Rachel Reeves that the economy is “headed for the worst of all worlds” with activity expected to fall sharply in the first three months of 2025.
A major survey by the Confederation of British Industry (CBI) found firms expected to reduce both output and hiring.
The Chancellor’s hike to employers’ national insurance, set to rake in around £25 billion a year, was highlighted as one of the reasons for the gloomy outlook.
Alpesh Paleja, the CBI’s interim deputy chief economist, said: “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.
“Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.
“As we head into 2025, firms are looking to the Government to boost confidence and to give them a reason to invest, whether that’s long overdue moves to reform the apprenticeship levy, supporting the health of the workforce through increased occupational health incentives or a reform of business rates.
“In the longer term, businesses will be looking to the industrial strategy to provide the stability and certainty which can unlock innovation and investment – and provide that much-needed growth for the economy which can deliver prosperity for firms and households alike.”
The CBI’s growth indicator survey, based on responses from 899 companies between November 25 and December 12, found expectations for growth are now at their weakest since November 2022 in the aftermath of Liz Truss’s chaotic tenure in No 10.
The predicted fall in activity is broad-based: business volumes in the services sector are anticipated to decline while distribution sales and manufacturing output are also expected to fall sharply in the three months to March.
The survey found a 24 percentage point gap between companies which gave negative responses on expected output and those which gave positive responses, a worse position than in November when there was a 10-point gap.
It is the worst figure since the -27 gap in November 2022 and the latest blow to Ms Reeves after a series of economic indicators painted a disappointing picture.
Official figures showed the UK economy unexpectedly contracted in October this year, marking two months in a row of negative growth for the first time since the pandemic.
The Office for National Statistics (ONS) said gross domestic product (GDP) contracted 0.1% in October.
The rate of Consumer Prices Index (CPI) inflation rose to 2.6% in November, its highest level since March and the second monthly increase, while the Bank of England held interest rates at 4.75% as it cautioned over “heightened uncertainty in the economy”.
Shadow business secretary Andrew Griffith said: “Since taking office, the Chancellor has made this country a hostile climate for aspiration, for investment and for growth. Rachel Reeves’s tax-raising spree and trash-talking her economic inheritance are literally killing businesses and jobs.
“If there is a recession – and based on these CBI expectations that seems increasingly likely – it will be one made in Downing Street.
“Labour needs to urgently change course before the damage they are doing becomes even greater.”
