UK Economic Growth Set for Triple Hit as CBI Sounds Alarm on Labour Costs Inflation and US Trade

Britain’s economic prospects face mounting pressure as the Confederation of British Industry (CBI) warns of a significant slowdown driven by escalating labour costs, persistent inflation, and uncertainties surrounding US trade relations.

The influential business organisation has reduced its growth forecast for the current year from 1.6 per cent to 1.2 per cent, aligning with projections from other major economic institutions. The outlook appears even more challenging for the following year, with growth expected to decelerate to a mere 1 per cent, down from last year’s 1.1 per cent performance.

CBI’s chief economist, Louise Hellem, points to the government’s recent policy decisions as key factors in the downturn. The increase in national insurance contributions for employers and the elevation of the national living wage are expected to trigger a cascade of economic challenges, including price increases, dampened business investment, and slower employment growth.

The labour market outlook appears particularly concerning, with unemployment projected to reach 4.8 per cent next year, while inflation is set to climb to 3.5 per cent in the third quarter. Business sentiment indicators suggest investment intentions are at their weakest in five years, despite an early-year surge driven by companies rushing to beat potential US tariff implementations.

Trade forecasts paint an equally sobering picture, with UK exports predicted to contract by 1.3 per cent and imports falling by 0.9 per cent. The Trump administration’s decision to maintain a minimum 10 per cent tariff on British goods exports, despite a partial agreement on cars and ethanol, continues to cast a shadow over trade prospects.

The Bank of England is expected to respond to these challenges by reducing interest rates from 4.25 per cent to 3.5 per cent by early next year, as monetary policy makers attempt to bolster the slowing economy. Consumer spending, supported by healthy real income growth and accumulated savings, remains the primary driver of economic expansion.