UK Growth Forecasts Plummet Amid Tax Increases: CBI Warns of Business Impact

The Confederation of British Industry (CBI), the leading business lobby group in the UK, has revised down its growth forecasts for the country following the recent tax increases announced by Rachel Reeves. The CBI now expects GDP to grow by just 1.2% this year and 1% next year, down from the previously predicted 1.6% and 1.5%, respectively. Chief economist at the CBI, Louise Hellem, attributed the downgrade to the rising cost of employment in the wake of the Chancellor's Budget last October. She explained that the decision to increase taxes on National Insurance contributions alongside the increases in the national living wage has had a significant impact on business decisions, making it more expensive for businesses to operate in the UK and forcing many to make tough choices, particularly on hiring decisions. Reeves' £25bn tax raid raised the rate of tax employers pay on their workers' wages from 13.8% to 15% and cut the threshold at which the levy kicks in, making it more expensive to hire part-time staff in particular. Hellem urged the Chancellor to seek ways to make the tax system more efficient instead of raiding businesses again in the 2025 Budget scheduled for the autumn, as weak growth raises fears of another black hole in the public finances over the coming months. The CBI also warned that businesses are struggling with Donald Trump's trade war, with exporters suffering directly from the taxes applied to their sales into the US. Uncertainty is hitting growth in the wider global economy and undermining confidence in investment decisions. Sustained geopolitical turmoil, including the strikes between Israel and Iran, adds to the sense of uncertainty which threatens business investment. Martin Sartorius, economist at the CBI, said that all these global events lead to a huge amount of volatility in global markets, leading to a more risk-averse mindset. He added that some firms are choosing to scenario plan and wait and see before shifting their operations from one country to another due to unpredictable tariffs and restrictions. Despite these challenges, Britain's GDP grew by 0.7% in the first three months of the year, boosted in part by a surge in exports as American importers sought to bring in goods before tariffs added to their price. The CBI's economists expect quarterly growth to slow over the course of this year then recover into 2026 as rising wages, slowing inflation, and lower interest rates allow households to spend more money. The analysts predict that the Bank of England will cut its base rate from 4.25% today to 3.5% in a year's time. Helen Miller from the Institute for Fiscal Studies warned the Chancellor that changes to the borrowing rules are not a "get-out-of-jail-free card" for extra spending. She emphasized that borrowing still comes with costs and debt interest costs, and that the fiscal rules are supposed to be a constraint on what can be done, not a target to say that extra space has been freed up for spending. A Treasury spokesman said that they are investing in Britain's renewal through their Plan for Change to make working people better off, and that the spending review set out how they will deliver jobs and growth – including plans to improve city region transport, a record investment in affordable homes, and funding Sizewell C. They also noted that they have secured deals with the EU, US, and India to help lower costs for businesses and have stabilised the public finances, helping interest rates to fall four times since July.