UK economy growth: firms warn Rachel Reeves economy heading for trouble with economic decline expected in 2025
Sharp cuts to hiring and output are expected in the early months of next year 📉
- Businesses warn the economy is heading for a sharp downturn
- A CBI survey shows companies plan to cut both production and hiring, citing government policies
- Growth expectations are at their lowest since November 2022
- The UK economy has faced consecutive months of negative growth, rising inflation and uncertain conditions
Businesses have warned Chancellor Rachel Reeves that the economy is heading towards “the worst of all worlds”.
A survey by the Confederation of British Industry (CBI) showed that companies plan to cut back on both production and hiring, with activity expected to fall sharply in the first three months of 2025.
The government’s decision to increase national insurance for employers, which will raise around £25 billion a year, was pointed to as one reason for the negative 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 survey, which surveyed 899 companies between 25 November and 12 December, found that growth expectations are at their lowest since November 2022, after the chaotic period under short-lived Prime Minister Liz Truss.
The expected drop in activity is widespread: businesses in services, distribution and manufacturing are all expecting significant declines in the first three months of 2025.
The survey found a big gap between companies expecting a fall in output and those expecting growth, with a 24-point difference. This is worse than the 10-point gap in November and the largest since November 2022.
It comes after a series of disappointing economic reports, including official figures showing the UK economy shrank unexpectedly in October, marking two consecutive months of negative growth for the first time since the pandemic.
The Consumer Prices Index (CPI) inflation also rose to 2.6% in November, its highest level since March, and the Bank of England kept interest rates at 4.75% due to uncertainty in the economy.
What do you think about the current economic outlook? Do you believe the government's policies are to blame, or is there another factor at play? Share your thoughts in the comments section.