Gloomy CBI comments cap miserable week for UK economy

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The UK faces a deeper and longer downturn than many expected, setting back living standards for at least two years.

That’s the view of new CBI chief Brian McBride who tells the FT in his first interview since taking the helm of Britain’s biggest employers’ group that the country’s businesses face an uphill battle to cushion consumers from a cost of living crisis that could be as damaging to the economy as the pandemic.

McBride’s comments cap a week of miserable news on the state of the British economy.

On Wednesday, Bank of England governor Andrew Bailey told assembled central bankers that UK inflation — which hit 9.1 in May and is forecast by the BoE to pass 11 per cent in the autumn — would stay higher for longer than in other comparable economies thanks to unique pressures such as the government’s energy price cap and the country’s tight labour market, a situation exacerbated by Brexit.

The effect of withdrawal from the EU was also highlighted in yesterday’s trade data, showing Britain’s performance in the first quarter falling to its worst level on record, thanks to weak export performance and a surge in imports.

Exports have been falling since 2021 when the UK left the EU single market and new border regimes were introduced. Brussels (unsurprisingly) reiterates the point, but Downing Street remains reluctant to order an economic impact assessment of the withdrawal.

The ripping up of post-Brexit trading arrangements for Northern Ireland has also caused alarm. This is “a time for economics, not politics,” was McBride’s response. You can read more here from political editor George Parker and economics editor Chris Giles on how the true extent of the damage from Brexit is becoming clearer as the effects of the pandemic are disentangled.

The PMI reading for UK manufacturing meanwhile was confirmed today at a two-year low of 52.8 in June, down from 54.6 in May, where 50 marks the divide between expansion and contraction.

The cost of living squeeze was also highlighted today by new data showing UK mortgage rates rising at their fastest pace in a decade and figures yesterday showing record numbers of workers paying higher rates of income tax after the government decision to freeze thresholds for four years.

Some workers, such as those at Barclays, have been handed pay rises to help them cope, while others are turning to industrial action to secure pay rises to keep up with rising prices.

“People’s costs [and] living standards are absolutely going to go backwards over the next year or two, without a doubt,” says the CBI’s McBride. “For individuals and for businesses, we are in for a tough time.”

The FT is running a survey on the cost of living squeeze — how are you coping with higher prices? For more, click here.

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