Business confidence is falling. Companies are warning that profits will be lower than expected, and they are already planning to cut their output. The Chancellor Rachel Reeves might have hoped that this week would open with better news on the economy, especially as she is planning a major speech to relaunch her plan for growth on Wednesday. Instead, it has started with yet more bad news. In reality, a ‘Reeves recession’ is now a certainty – and the Chancellor won’t be able to escape the blame for that.
The CBI reported today that British businesses are braced for a ‘significant fall’ in trading over the next few months. There is ‘widespread pessimism’ across the private sector, with a net 22 per cent of private sector companies forecasting that they expect their output to decline between now and April. Companies are cutting staff, moving jobs overseas, and reducing investment. At the same time, figures from EY showed that profit warnings rose sharply, with almost one in five companies listed in London saying they will make less money than expected – the highest level since the pandemic in 2020.
When they can, businesses are getting out. It emerged last week that Santander was looking at quitting the UK market because it couldn’t see how it could make any money here. WH Smith is looking at selling its high street stores to concentrate on its faster-growing international travel business. Meanwhile, the advertising giant WPP has looked at ditching its London listing for New York. A shrinking UK market is increasingly no longer worth the bother.
Add it all up, and the outlook is grim and getting worse with every week that passes. The UK is now trapped in a vicious cycle of falling investment, lower output, collapsing profitability, and weak demand. Output was already stagnant at the close of 2024, and if companies cut back on production and staffing levels to the extent the CBI says they will, then a recession is inevitable.
It has become painfully clear that the Labour government is to blame for that. The Chancellor gambled that the corporate sector would be able to absorb the extra £25 billion in employment taxes, and that the promise of ‘stability’ would boost investment, easily offsetting any losses from the tax increase. The gamble has failed. Instead, the tax rises have shattered confidence, wiped out profits, and deterred investment. Reeves won’t be able to escape the blame – and even worse, it is too late for her to stop it now.
Comments