Britain’s biggest business lobby cut its growth forecasts for the UK economy and said the referendum on European Union membership has put a “dark cloud of uncertainty” over the outlook.
The warning yesterday from the Confederation of British Industry follows an intense week of back and forth between both sides of the debate before the June 23 vote, with International Monetary Fund Managing Director Christine Lagarde and Bank of England Governor Mark Carney saying that leaving the EU could trigger a recession.
Those interventions prompted accusations of scaremongering from Brexit campaigners including former Chancellor of the Exchequer Norman Lamont. Also yesterday, the Telegraph newspaper published a letter signed by 300 business people saying that the UK would be better off outside the EU.
Britain’s competitiveness is being “undermined by our membership of a failing EU” and “Brussels red tape stifles” millions of companies, they said.
The issue of EU membership and the potential implications of quitting the bloc are dominating the political and economic landscape in the UK Global prospects are also less assured than at the start of the year and the IMF has warned that the world economy is at risk of slipping into stagnation.
The CBI now sees UK gross domestic product rising 2% this year and next, down from 2.3% and 2.1%, it said in London yesterday. That’s in line with the BoE, which lowered its projections on Thursday.
“A dark cloud of uncertainty is looming over global growth, particularly around weakening emerging markets and the outcome of the EU referendum, which is chilling some firms’ plans to invest,” said CBI director-general Carolyn Fairbairn. “We expect the UK’s growth path to continue but it is likely to be at a slower rate than previously thought.”
Growth slowed to 0.4% in the first quarter and surveys point to a continued loss of momentum. Data this week will provide new insights into the economy, starting with a report today that’s forecast to show inflation held at 0.5% in April, far below the BoE’s 2% target.
Basic-wage growth probably accelerated to 2.3% in the first quarter from 2.2% in the three months through February and retail sales probably rose for the first time in three months in April, economists forecast before separate reports on Wednesday and Thursday. The CBI will release its monthly factory-orders report on Friday.
In a separate report yesterday, the Chartered Institute of Personnel and Development said earnings are set to remain in the “slow lane” through the end of the decade. A survey of 1,000 employers showed that companies expect median pay increases of about 1.7% in the year to March 2017. The weak pace is partly due to low inflation.
“The UK is now in its eighth year of productivity ‘go-slow,’ which continues to limit the scope for employers to pay more,” said CIPD economist Mark Beatson. “Recruitment and retention problems have so far proved manageable without across-the-board pay rises. This survey provides no indication of this situation changing any time soon.”
Osborne turns fire on ‘out’ plan
Finance minister George Osborne attacked pro-Brexit campaigners for saying Britain should not just leave the European Union but also its single market, as he sought to convince voters that the economy faces big risks in next month’s referendum.
Osborne said Britain would lose £200bn ($287bn) a year in trade in 15 years’ time and miss out on the same amount in foreign investment, if it fell back on World Trade Organisation rules to govern its ties with the EU after a Brexit.
“Leaving the EU is a one-way ticket to a poorer Britain,” Osborne told media in an aircraft hangar at Stansted Airport, northeast of London, where the head of airline Ryanair said his firm could lower investment after an “Out” vote.
Opinion polls have shown that voters tend to think that staying in the EU would be better for Britain’s economy but they also remain almost evenly split between those who want to stay in the bloc and those who want to leave.
As part of a relentless series of warnings about the economic risks of Brexit, Osborne’s finance ministry is due to publish a report on the short-term impact of an “Out” vote soon. A leading supporter of the “Vote Leave” campaign, justice minister Michael Gove said earlier this month that Britain should also leave the single market after a Brexit.
If a post-Brexit Britain wanted to remain part of the single market, it would probably face demands from the rest of the bloc to keep its borders open to EU workers and to continue paying into the EU’s budget, just as Norway and Switzerland do.
The “Out” campaign has put stopping high levels of immigration and Britain’s contributions to the EU budget at the centre of their message to voters.
Osborne spoke yesterday alongside former Labour Party economics spokesman Ed Balls, who was long a critic of Osborne, and former business minister Vince Cable, a senior member of the opposition Liberal Democrat party. Balls and Cable both said Britain risked economic damage if it left the EU.
Osborne also accused the “Out” campaign of resorting to conspiracy theories ahead of the referendum for calling into question the motives of global bodies such as the International Monetary Fund and the Organisation for Economic Co-operation and Development when they spoke of the economic risks of Brexit.
“The economic argument is beyond doubt. It’s not a conspiracy, it’s called a consensus,” Osborne said.
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