Economic Growth Forecasts Revised Downward

By William Schomberg

LONDON (Reuters) – One of Britain's leading employers' groups, the Confederation of British Industry (CBI), has recently revised its economic growth estimates for the coming years downward due to the measures in the new government's first budget.

Key Changes in Growth Estimates

• 2025 Growth Forecast: Revised to 1.6% from 1.9%
• 2023 Growth Outlook: Adjusted to 0.9% from 1.0%

According to CBI's chief economist, Louise Hellem, the new budget's measures will increase firms' costs, further straining their profit margins. Many businesses indicated that these changes could lead to higher prices and negatively impact hiring and investment plans.

Budget Implications

On October 30, Finance Minister Rachel Reeves announced that employers would face higher social security contributions starting in April, coinciding with a nearly 7% increase in the minimum wage. These additional costs have raised concerns among businesses about the impact on Prime Minister Keir Starmer's economic acceleration plans.

The Bank of England has reported that over half of surveyed companies intend to raise prices and cut jobs in reaction to the recent budget.

Comparisons with Other Forecasts

• Another employers' group, the British Chambers of Commerce (BCC), expects 2025 growth to be 1.3%, up from a previous 1.0%.
• The OECD has also improved its forecast for Britain’s 2025 growth to 1.7%, an increase from 1.2%.

Longer-Term Economic Trends

The CBI predicts that while business investment in 2025 will increase, it will slow slightly in 2026 due to heightened employment costs and increased public investment. Inflation rates are expected to stay above the Bank of England's (BoE) target until at least 2027, primarily driven by the rise in labor costs.

Wage and Employment Outlook

Wage growth is anticipated to decline, and the BoE is expected to gradually lower its benchmark Bank Rate to 3.5% by late 2026 from the current 4.75%. Overall economic growth for 2026 is projected at 1.5%. The CBI's forecasts are based on the assumption that Britain will avoid additional U.S. trade tariffs. However, it also notes that the effects of a trade war would have only a marginal impact on growth and inflation.