Business leaders have warned Boris Johnson that the crisis engulfing his government risks undermining business confidence and potentially tipping the UK into recession.
Tony Danker, chief executive of the CBI, said he believed the UK could still avoid going into recession in the coming months.
But he warned: “There is a very simple chain of events, which is when business confidence is high, businesses invest and grow, recession is averted.
“When business confidence drops, investment drops, and that’s the only thing right now that’s keeping us from going into a recession. So anything that can be done to boost business confidence, to demonstrate that “In fact the government is incredibly serious and determined about growth will work. But if we have a political summer like the one we had last week, it will undermine confidence.”
The Prime Minister has said economic growth is his top priority as he seeks to revive his government after 4 in 10 of his own MPs voted to oust him from Downing Street last week.
Mr Johnson is also facing a growing clamor for Tory MPs to announce sweeping tax cuts, following complaints that his administration is not conservative enough.
But Mr Danker also warned that ‘massive’ tax cuts, or huge pay deals, would ‘overheat’ the economy.
NI Secretary Brandon Lewis said he would support the introduction of the Chancellor’s planned income tax cut “when we can afford it”.
The 1p cut was promised in 2024, but many Tory MPs fear the party cannot afford to leave it that long.
The CBI downgraded its outlook for economic growth and called on the Prime Minister and Chancellor to take ‘vital’ steps to avert a recession, including holding a Cobra meeting of the type usually reserved for events such as terrorist incidents.
The group also believes that inflation will remain high in the fall, leading to a “historic squeeze” in household incomes and consumer spending.
Labor would abandon the recent National Insurance hike “right now” if it were in government rather than focus on income tax cuts, shadow chancellor Rachel Reeves has said.
She told the BBC’s Sunday morning show: “The thing we should be doing right now is canceling this National Insurance increase.
“That would be my priority if I was chancellor today because it takes money out of people’s pockets.”
She added: “The government has this kind of hokey-cokey where they’re increasing national insurance but saying they’re going to cut income tax.
‘National Insurance is a tax only on the income you get from going to work, which is why this is such a damaging tax increase in the midst of a cost of living crisis.’