Might next year’s economic pain be less than forecast?

This morning’s economic update from the Confederation of British Industry doesn’t make for cheery reading – but it could be worse. The organisation forecasts that the combination of high prices and low business investment will see the UK in recession throughout next year. Having previously predicted a 1 per cent rise in GDP next year, the CBI now expects a 0.4 per cent contraction. Meanwhile, the organisation’s economists expect average inflation over the course of the year to be more than three times the Bank of England’s target of 2 per cent.

It’s by no means good news – but compared with other recent forecasts for the UK economy, it’s the closest we might get. The CBI’s predictions are on the optimistic side of the trials the economy will have to face over the next few years. Its forecast for recession is significantly less severe than either the Bank of England or the Office for Budget Responsibility’s calculations in the past month – a contraction of 0.4 per cent, compared with the Bank’s predicted fall of 1.4 per cent and the OBR’s 1.6 per cent. The CBI also sees average inflation falling further next year than both the Bank and the OBR.

How has the CBI reached this comparatively optimistic forecast? I understand that the organisation’s economists – which are laser-focused on the business angle of the economy and its impact on a recession – still see the opportunities for growth next year despite all the hurdles, including inflation and the labour market crunch. It has been acknowledged, however, that there is a growing gap between central and downside scenarios. This means policy decision-making at home can play a real role in spurring on business investment or development, or suppressing it.

And so, the ball lands back in the government’s court, with growing questions about what a growth agenda might look like under Rishi Sunak’s government. We know from Chancellor Jeremy Hunt’s Autumn Statement that the focus is on creating ‘silicon valley’ style innovation and more investment in education. But apart from that, a growth agenda remains vague.