Firms worry about flatlining growth amid Budget tax rises concerns
Private sector firms expect to see growth flatline in the final months of the year, a survey suggests, as concerns about the Budget build.
For the second successive month, the Confederation of British Industry’s (CBI) growth indicator showed that businesses do not expect to see any change in activity over the next quarter.
The CBI said that the “tepid outlook” was reflected across all sub-sectors.
The survey suggests services activity will stand still, as growth in professional services is offset by a “modest decline” in consumer services.
Distribution sales – including retailers, wholesalers and motor traders – will likely fall over the coming three months while manufacturing output will remain unchanged.
Alpesh Paleja, interim deputy chief economist at the CBI, said the survey suggests the economy is “shifting down a gear” entering the final quarter of 2024.
The UK economy comfortably outperformed expectations in the first half of the year, when it was one of the fastest growing major economies in the world.
However, growth has eased significantly in recent months. Though the slowdown was widely expected by economists, some surveys have suggested that Budget uncertainty has been a contributory factor.
Businesses concerned ahead of the Budget
S&P’s flash purchasing managers’ index (PMI), for example, showed that activity in the private sector fell to its lowest level in almost a year during October.
The PMI, which also showed that businesses were shedding workers, was consistent with economic growth stagnating at the start of the final quarter.
Paleja warned that tax rises set to be confirmed in the Budget later today, such as the increase in employers’ national insurance, will likely weigh further on growth in the coming months.
“Many businesses are very concerned about potential increases to Employers’ NICs and the impact it will have on pay, hiring and investment,” Paleja said.
The hike to employers’ national insurance will likely form the centre-piece of a total tax increase worth around £35bn, one of the largest in history.
Speaking on Monday, Prime Minister Keir Starmer said that the tax hikes would “prevent austerity and rebuild public services.”