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Businesses say they are “closing their doors” amid fears of economic gloom in the new year as the fallout from Rachel Reeves’ budget continues.
A large survey by Confederation of British Industry (CBI) found that companies expect output and employment to decline, adding to the broader picture of a volatile economy in the second half of the year.
The results will be a blow to the government, which has put economic growth at the center of its mission. But expectations for growth are now the weakest of the aftermath Liz TrussChaotic tenure in number 10.
Chancellor’s increase in employers’ national insurancewhich launched in October and is expected to make around £25bn a year, has been highlighted as one of the reasons for the gloomy outlook. Alpesh Paleja, the CBI’s interim deputy chief economist, warned that the economy was “heading for the worst of all worlds”.
Rachel Reeves has previously defended her decision to raise taxes Budgetinsisting that its plan provided the stability needed to ensure growth.
“Now we have fixed the foundations of our economy, I am going for growth,” the chancellor said after the October fiscal event.
“Because we cannot tax and spend our way to prosperity, nor can we tax and spend our way to better public services. Instead, we need economic growth and we need economic reform.”
Speaking at a CBI event, she also said the government had no alternative but to raise taxes.
“I heard a lot of responses to the first government budget, but I didn’t hear any alternatives,” she said. “We asked companies and the richest to contribute more. I know these elections will have an impact.
“But I stand by those choices as the right choices for our country: investing in fixing the NHS and rebuilding Britain, while ensuring that working people don’t face higher taxes on their payslips.”
The CBI’s growth indicator survey, based on responses from 899 companies between November 25 and December 12 this year, found that growth expectations are now the weakest since November 2022.
The predicted decline in activity is broad-spectrum, with an expected decrease in the volume of business in the service sector, while a sharp decline in distribution sales and manufacturing output is also expected in the three months to March.
Official figures showed that the British economy unexpectedly contracted in October this yearwhich marked two consecutive months of negative growth for the first time since the pandemic.
The consumer price index (CPI) inflation rate rose to 2.6 percent in November, the highest level since March and the second monthly increase, while the Bank of England kept interest rates at 4.75 percent as it warned of “increased uncertainty in the economy”.
John Longworth, chairman of the Independent Business Network, said he was not surprised by the survey results The Independent: “Almost all the family businesses I talk to in our network are slamming the doors of the recession and trying to survive this government that is nitpicking.
“They’re cutting agencies, stopping hiring, laying off staff, cutting bonuses. Mrs Reeves appears to be entrepreneurially illiterate, relying on the magic tax tree to steer the UK from a position of growth to one of stagflation.”
Earlier this month, leading British businessman James Reed, chairman of recruitment giant Reed, warned that the budget had “scared business” and suggested a recession could be “around the corner”.
The CBI survey found a gap of 24 percentage points between companies that gave negative responses to expected performance and those that gave positive responses – a worse position than in November 2024 when there was a gap of 10 points.
It is the worst figure since a 27-point gap in November 2022 and the latest blow for Ms Reeves after a range of economic indicators painted a disappointing picture.
Craig Beaumont, chief executive at the Federation of Small Businesses, called on the government to introduce more support for small businesses.
“Cash flow will be king in 2025,” he said The Independent. “It is important that small employers are aware that they will receive £10,500 from their annual employer’s National Insurance contributions bill from April.
“To improve sentiment and growth, this must be accompanied by further direct government support for SMEs, such as ending the blanket use of personal guarantees by the big banks, reducing business aid rates for smaller premises and stopping late payments from foreign UK corporations.
“Unlocking this cash flow will turn the tide and spark activity and local growth.”
Shadow business secretary Andrew Griffith said: “Since taking office, the chancellor has made this country a hostile climate for aspiration, investment and growth.
“Rachel Reeves raising taxes and trash talking her economic legacy is literally killing businesses and jobs.
“If there is a recession – and based on these CBI expectations that looks increasingly likely – it will be a Downing Street recession. Workers must urgently change course before the damage they are doing becomes even worse.”
Mr Paleja, the CBI’s interim deputy chief economist, said: “There is little festive cheer in our latest research, which suggests the economy is headed for the worst of all worlds – companies expect to cut both output and employment and growth expectations the price becomes firmer.
“Businesses continue to cite the impact of the measures announced in the Budget – particularly the rise in employers’ NICs – exacerbating already tepid demand.
“As we head into 2025, businesses are looking to the government to boost confidence and give them a reason to invest, whether that’s long-overdue moves to reform the apprenticeship levy, support workforce health through increased occupational health incentives or business reform rate.
“In the longer term, businesses will look to industrial strategy to ensure the stability and security that can unlock innovation and investment – and provide that much-needed growth for the economy that can bring prosperity to both firms and households.”
The Treasury has been contacted for comment.