The UK’s foremost business lobby group has warned the government that its threat to override the Northern Ireland protocol is forcing companies to think again about investing in Britain and dragging down the economy.
The Confederation of British Industry (CBI) said immediate talks with the EU, rather than political grandstanding, were needed to resolve the impasse over the protocol, which governs post-Brexit trade between the EU, Northern Ireland and Great Britain.
Boris Johnson’s government is preparing to launch new legislation on Monday that would give ministers power to scrap parts of the protocol, despite intense criticism from businesses and opposition MPs and the threat of retaliation from Brussels.
Tony Danker, the director general of the CBI, said reaching a deal was in the best interests of the British economy as businesses and households struggle with the soaring cost of living and looming risk of recession.
“I don’t think it’s time for grandstanding; I think it’s time to do a deal,” he said. “I’m firmly of the view the Europeans are being inflexible. At the same time, our measures – which may come on Monday – to take unilateral action in response are unhelpful.”
The head of the lobby group, which represents 190,000 companies across the UK, said renewed Brexit uncertainty triggered by the protocol dispute was hurting the British economy. Last week, the Organisation for Economic Co-Operation and Development (OECD) predicted the UK would be the second-worst performing G20 country next year, after Russia.
“We do see global firms shorting on the UK right now,” Danker said. “They look at the UK and think [there is a] combination of a bit of Brexit worry again, some of these figures from the OECD, and we see global companies thinking: ‘Maybe not the UK to invest in right now.’”
However, Danker said he believed there was a “very firm landing zone” for a deal that would satisfy the UK, EU and businesses in Northern Ireland.
A UK government spokesperson said: “The protocol as it stands is undermining the Belfast [Good Friday] agreement and power sharing.
“Our legislation will fix the problems. It’s always been our preference to resolve this through talks, but the EU has so far not been willing to change the protocol, which is necessary to deliver the solutions needed for Northern Ireland. Our focus has been, and will continue to be, preserving peace and stability in Northern Ireland.”
The CBI also issued a sharp growth downgrade for the UK economy in its latest economic forecasts, after a bruising week for Johnson’s personal authority, in which he faced a vote of no confidence from more than 40% of his own MPs.
Reflecting a severe hit to household incomes from the cost of living squeeze, the lobby group predicted UK GDP would grow by 3.7% this year, down from a previous estimate of 5.1%, and by just 1% in 2023, revised down from 3% before.
With inflation hitting the highest levels since the early 1980s, airports struggling to cope, national rail strikes on the horizon and “Groundhog Day battles with the EU” over the protocol, the CBI warned there was a real risk the economy comes a “distant second to politics this summer”.
As rival Tory factions push to reset the government’s economic agenda with their own favoured policies, Danker said ministers needed to step up their level of engagement with the economic challenges facing Britain.
“The economic ideas we should be discussing should be about what should boost business confidence and investment. They’re not about what is more Conservative,” he said.
With fewer than 40 days until parliament goes into the summer recess, the CBI said there was an urgent need for the government to announce measures to support businesses with soaring costs, staff shortages and supply-chain bottlenecks.
Rain Newton-Smith, the chief economist at the CBI, said the war in Ukraine, Covid, ongoing strains on supply chains and Brexit had “proven to be a toxic recipe for UK growth”.
Despite a rise in exports across other advanced economies, the CBI expects a weak recovery in global trade in Britain, with UK exports still 10% below pre-Covid levels by the end of 2023.
“Against the backdrop of the rising cost of doing business and continuing supply chain pressures, easing trade flows is in everyone’s interests. It’s not just about lowering non-tariff trade barriers in Europe and signing free trade agreements,” she said.
“Post-Brexit regulatory reforms to support growth, innovation and sustainability can build competitiveness. But divergence for the sake of it could introduce further red tape and friction undermining that mission.”