Business group says British economy needs to wean itself off debt-driven household and government consumption
Britain urgently needs to rebalance its flagging economy away from dependence on domestic demand by ramping up exports and business investment, the CBI has warned.
In a report, the employers' group admitted the challenge to refocus the economy was "substantial" but argued that Britain had little choice but to move away from relying on government spending and consumer demand, given that the former was being cut and the latter dwindling.
The coalition government has repeatedly said Britain needs to expand markets abroad and the chancellor, George Osborne, has espoused a "march of the makers" to boost exports. The CBI supported the view that rebalancing was the only way to achieve long-term growth, but said that "it's time to stop talking about it and get on with it".
John Cridland, the CBI's director general, said: "2012 is going to be a hard road but if we are canny and act now to put in place solid economic foundations, we will be stronger and secure a better future for ourselves. We need to identify how the UK will earn its living in the years ahead and that means adjusting to change."
The CBI argues that the UK economy had become dominated by "debt-driven household and government consumption", which together accounted for 89% of gross domestic product (GDP) in 2009 – more than in France, Germany or the US.
It does not share the view of trade unions, opposition Labour MPs and some thinktanks, who argue that the government's deficit reduction plans should be tempered to allow growth to pick up. The CBI wants rebalancing as well as debt reduction, something it has termed a "Plan A Plus" rather than a plan B.
Its most likely scenario for rebalancing sees net trade and investment exceeding household consumption to produce growth. It admits there are risks to Britain's net trade, given that 50% of its exports go to Europe. The group urges businesses to look beyond Europe and take advantage of trends such as the rise of middle-class consumers in emerging markets.