The economy is expected to recover to its pre-Covid trend over the next two years, according to new economic forecasts, but a look underneath the hood reveals the deep problems facing the next government.
New forecasts from the Confederation of British Industry (CBI) shows that GDP is expected to grow one per cent in 2024 before rising to 1.9 per cent next year.
After two years of economic stagnation, this would return economic growth to its post-financial crisis trend.
The CBI suggests the improvement in growth will almost entirely be driven by stronger consumer spending, which will rise 0.8 per cent in 2024 and 2.5 per cent in 2025.
“Falling inflation and firm wage growth will support real wage gains, while household finances will also receive support from higher benefits and lower NICs,” the business group said.
Business investment, meanwhile, is expected to fall 0.2 per cent this year due to the”lagged impact of stagnant GDP growth”.
While investment will then pick up to 1.8 per cent as activity strengthens, Alpesh Paleja, lead economist at the CBI, said this would still not reverse “the longer term trend of underperformance”.
“The UK has persistently under-performed in this regard relative to other G7 economies,” he said.
More worryingly, productivity is expected to remain about 1.5 per cent below the pre-Covid trend by the end of the forecast period, partly due to relatively low levels of investment.
“This highlights that there clearly is more to be done to boost the UK’s potential for growth over the long-term,” the CBI said.
Louise Hellem, CBI Chief Economist, said: “We cannot afford to be complacent about our progress going forward. To ensure longer-term, sustainable growth, we must tackle our ongoing productivity problem.
“Political parties have an opportunity to prioritise the economy and unlock long-term, sustainable growth by using their manifestos to set out measures that will support business investment and propel growth for the next decade and beyond,” she added.
The CBI has called on the next government to introduce a Net Zero investment plan, a clear trade strategy and support for firms investing in AI.