Introduction
The Confederation of British Industry (CBI), one of the United Kingdom’s foremost business organisations, has raised concerns that recent tax increases are stifling job creation and economic growth.
In its latest economic outlook, the CBI predicted a subdued period for the UK economy, largely attributing this to persistent weakness in private sector investment. The group argued that the government's approach has prioritised short-term stability over significant pro-growth reforms.
These warnings follow the government’s latest budget announcement and are echoed by similar concerns from other business bodies.
Private Sector Growth Remains Weak
The CBI has highlighted continued sluggishness within the private sector. Despite marginal improvements in economic forecasts, business leaders warn that the underlying conditions for private enterprises remain challenging.
Companies have cited high operating costs, persistent demand uncertainty, and ongoing difficulties in securing investment as key obstacles. Chief Economist Louise Hellem explained that the early momentum reported at the start of 2025 has since waned significantly.
Many UK businesses are reportedly struggling to adapt to changes in employer national insurance and increases to the minimum wage. Rising energy costs are also weighing heavily on operational budgets, leading to concerns about the overall competitiveness of British firms.
Revised GDP Forecasts Show Modest Gains
The CBI has marginally increased its forecast for UK gross domestic product (GDP) growth, now expecting an expansion of 1.4 per cent in 2025, up from the previous 1.2 per cent projection. The forecast for 2026 has also been raised from 1 per cent to 1.3 per cent.
However, these improvements remain limited and are not seen as signs of a robust recovery. Leading economists caution that these figures may not fully reflect the more challenging underlying trends. According to the CBI, household spending continues to be constrained by weak growth in living standards, while private investment remains less than buoyant.
Short-Term Gains Attributed to Public Spending
Much of the expected uplift in GDP figures for the coming years has been attributed to a temporary increase in public sector expenditure.
The government’s latest budget has allocated additional resources to various sectors in a bid to stimulate the economy. However, the CBI warned that these are short-term measures, set to be funded in part by further tax rises taking effect from 2028.
Many within the business community believe these strategies do not offer sustainable foundations for longer-term economic expansion.
Concerns Over Business Investment and Living Standards
Business investment remains a particular area of concern. The CBI noted a continued reluctance among companies to commit to new projects or capital expenditure, citing high costs and significant uncertainty both domestically and internationally.
At the household level, slow growth in living standards is also impacting consumer spending, which in turn affects broader economic performance.
The CBI said that the current environment makes it difficult for firms to plan for the future, with Louise Hellem observing that 'there’s nothing that provides a lasting impetus to business investment and growth.'
Reaction From the Confederation of British Industry
CBI chief economist Louise Hellem commented that 'the ambition is there' in government plans for longer-term reforms, such as improvements to planning and infrastructure. Nonetheless, she added that the recent budget represented an approach prioritising stability rather than immediate growth.
Hellem stated, 'If the government is serious about restoring confidence and turbocharging its growth mission, it must urgently address some of the biggest barriers to competitiveness.'
These challenges include high energy costs and a complex business tax regime, both of which have been described as impediments by business leaders.
Final Summary
Recent economic analysis by leading business organisations points to ongoing challenges for the UK’s private sector, particularly in the face of rising taxes and operational costs. Incremental improvements to GDP forecasts have been driven largely by short-term public spending, while concerns around business investment and consumer spending continue to constrain broader growth prospects.
Without substantial reforms to the tax and cost structure affecting businesses, economic leaders argue that prospects for a significant recovery remain limited. Readers can stay informed on the evolving business landscape and policy developments with the Pie app.
