Rachel Reeves is unlikely to be happy with the latest economic predictions from UK businesses this morning as growth is expected to turn negative for the first time this year.
The chancellor wanted to raise £40bn in her October Budget, partly by increasing National Insurance contributions paid by employers.
This was meant to bolster public services and help fix the £22bn black hole the Tories supposedly left in the public finances.
But, a month after Reeves’ Budget, the Confederation of British Industry (CBI) now believes expectations for UK growth have turned negative for the first time in 2024.
That is a massive blow for Labour, who made growing the economy their number one pledge for government.
The CBI’s growth indicator shows most UK companies are anticipating a decline in activity over the next three months.
That’s a particularly bleak prediction, considering private sector activity already fell in the three months leading up to November.
It also comes after Labour repeatedly pledged to be pro-growth and pro-business.
The CBI wants the government to reform business rates, offer apprenticeship levy flexibility and boost occupational health incentives to try and get the country back on track.
But around 81% of business leaders thought Labour would not listen to their concerns.
Alpesh Paleja, the CBI’s interim deputy chief, said: “As we head into 2025, expectations for growth have taken a decisive turn for the worse.
“Our surveys suggest that anticipated activity was already weakening heading into the October budget, and the chancellor’s announcements have left businesses with even more tough choices to make.
“News that firms are planning to reduce headcount is a concern, with hiring intentions at their weakest since the tail end of the Covid-19 pandemic.
“This could be an early sign of the impact of higher labour costs from the upcoming rise in employer NICs, and the uprating in the national living wage.”
The London Chamber of Commerce and Industry has already said it believes the Budget and the employment rights bill has set up a “perfect storm” for companies in the capital.
Karim Fatehi, chief executive of the London chamber, said that “the business community views the combined package of increased employer national insurance contributions, cuts to business rates relief and the employment rights bill as a serious threat to their operations over the coming years”.
“It also shows that London businesses are fast losing faith in the government’s economic growth strategy,” Fatehi added.
Top stores such as Tesco, Sainsbury’s, Amazon and Greggs also told the chancellor in November that her Budget will cause “inevitable” job losses and higher prices.
However, minister Alex Norris told LBC’s Nick Ferrari the Budget would not be reviewed – and that he did not “recognise the characterisation” of negative growth from the CBI.
“We believe that our Budget is a Budget for growth and that’s what we’ll be judged on,” he claimed.
He added: “We appreciate that people have different views on it, but it’s the view of the government of the day that this is the right way to balance spending, investment, taxation.”
