Prospect of 'stagflation' has companies in survival mode

Businesses say they are battening down the hatches” in fears over economic gloom in the new year as the fallout from Rachel Reeves’s Budget continues.

- MILLIE COOKE

A major survey by the Confederation of British Industry (CBI) found firms are expecting to reduce both output and hiring, adding to the wider picture of a jittery economy in the second half of the year.

The results will be a blow to the government, which has put economic growth at the heart of its mission. But expectations for growth are now at their weakest since the aftermath of Liz Truss’s chaotic tenure in No 10.

The chancellor’s hike to employers’ national insurance, which was unveiled in October and is expected to rake in around £25bn a year, was highlighted as one of the reasons for the gloomy outlook. Alpesh Paleja, the CBI’s interim deputy chief economist, warned the economy is “headed for the worst of all worlds”.

Rachel Reeves has previously defended her decision to raise taxes at the Budget, insisting her plan provided the stability needed to secure 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.