With a GDP growth of 0.4% anticipated over 2023, set to escalate to 1.8% in 2024, these figures mark a significant upgrade from the previous year’s forecast. This improvement is attributed to several factors, including an enhanced global outlook and falling wholesale energy prices.

The financial landscape is not without its challenges with domestic price pressures stubbornly strong, particularly wage growth and services inflation. The CBI expects the Bank of England to respond with two further interest rate increases, which would see rates reach 5% by August and to remain alert to the potential for financial market stress.

Despite the optimism for the economy’s overall performance and indications of improvement in business investment intentions, with firms planning to invest more heavily in green initiatives, the UK business sector still lags behind other economies.

While productivity is expected to see a modest increase of 1.2% in 2024, it remains sluggish in comparison to historical trends. This issue is further compounded by the forecast for real household incomes, which are predicted to drop for the second consecutive year. This will place added pressure on household spending and present challenges for both businesses and consumers.

The longer-term impact of the COVID-19 pandemic on the UK’s GDP is also evident, with predictions suggesting that by the end of 2024, the economy will be approximately 7% smaller compared to its pre-pandemic trend.

Rain Newton-Smith, CBI director general, said: “Businesses and consumers alike will be relieved that the UK economy has avoided recession and will re-enter growth territory in the second half of this year. But firms want to see growth – and productivity – pick up pace. We want to see the UK at the top of the global league tables once again.

“So, it’s crucial to create a business environment that gives firms greater confidence to invest and decarbonise. Providing consistency and clarity to the principles underpinning our business tax system will boost the ambitions of UK plc.

“We need to make sure the UK gets behind green growth. We don’t have a second to lose, as firms clearly have a will to invest in green technologies and decarbonisation. There are major export markets to be won – and we have a huge opportunity to secure significant investment from abroad, strengthening the UK’s economic prospects.”

Alpesh Paleja, CBI lead economist, said: “Tailwinds to both the UK and global economies have firmed since the start of the year. Lower energy prices, China lifting COVID restrictions, and easing supply chain disruption have all contributed to some resilience in activity at home. We expect inflation to fall further over the course of our forecast, which should also ease the squeeze on household budgets.

“While encouraging, there’s no getting away from the fact that this year will be another tough one for both businesses and households. CPI inflation will end 2023 still double the Bank of England’s target, and businesses continue to grapple with persistent cost pressures and a tight labour market.

“It’s also concerning that the UK is underperforming on many of the areas crucial to our long-term prosperity, such as business investment and trade intensity. Making our business environment more attractive to firms at home and abroad must be front of mind in the months ahead.”