UK at risk of 'lost decade' as year-long recession looms - CBI

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The UK faces a potential "lost decade", the Confederation of British Industry warned on Monday, as stagflation left the economy braced for a year-long recession in 2023.

Publishing its latest economic forecast, the business organisation said that after a "turbulent year, both politically and economically", the UK likely fell into recession in the third quarter, when GDP shrank by 0.2%.

As a result, it has now slashed its GDP forecasts for 2023, to -0.4% from 1.0% previously, with the recession likely to last until the end of the year.

The CBI expects inflation - currently at a 40-year high of 11.1% - to gradually fall back over the year. But it will remain elevated and significantly above the Bank of England’s 2% target, finishing 2023 at 3.9%.

The UK is not expected to return to growth until 2024, as inflation continues to fall and the squeeze on households eases, helping GDP improve 1.6%.

However, the CBI warned that long-term economic prospects still remained "lacklustre" with subdued productivity and business investment leaving GDP well below both pre-Covid and pre-financial crisis levels. GDP is not forecast to return to pre-pandemic levels until the second quarter of 2024.

Tony Danker, CBI director general, said: "Britain is in stagflation, with rocketing inflation, negative growth, falling productivity and business investment.

"We will see a lost of decade of growth if action isn’t taken. GDP is a simple multiplier of two factors: people and their productivity. But we don’t have people we need, nor the productivity."

The CBI said the government needed to boost long-term growth by addressing the skill and worker shortage, encouraging business investment and shaking up regulatory requirements, including lifting the de facto ban on onshore wind.

Alpesh Paleja, CBI lead economist, added: "A second year of high, albeit it falling, inflation will hit households hard, especially those lower down the income distributions.

"While it’s some consolation that the upcoming recession will be shallow, it’s concerning that longer-term weakness in productivity and business appears to be bedding in. It does not bode well for living standards and the economy’s capacity to grow over the longer term."

The CBI expects GDP to grow by 4.5% in the current year.