Rachel Reeves has been dealt yet another blow as businesses warned the UK economy is “headed for the worst of all worlds” in 2025.

A survey by the Confederation of British Industry found firms expected to reduce both output and hiring at the start of the New Year.

They said the chancellor’s decision to hike employers’ National Insurance in the Budget in October was one of the reasons for the slump in confidence.

Meanwhile, the Office for National Statistics revealed this morning that the economy flatlined between July and September – Labour’s first three months in power – having previously said it had grown by 0.1%.

Alpesh Paleja, the CBI’s interim deputy chief economist, said: “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.

“Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.

“As we head into 2025, firms are looking to the government to boost confidence and to give them a reason to invest, whether that’s long overdue moves to reform the apprenticeship levy, supporting the health of the workforce through increased occupational health incentives or a reform of business rates.

“In the longer term, businesses will be looking to the industrial strategy to provide the stability and certainty which can unlock innovation and investment – and provide that much-needed growth for the economy which can deliver prosperity for firms and households alike.”

The CBI survey is yet more grim news for Reeves and prime minister Keir Starmer, who have pledged that Labour will have the fastest growing economy in the G7 by the time of the next election.

Lasy week the ONS said gross domestic product (GDP) actually fell by 0.1% in October, just as it did in September, raising fears that the UK could be heading for recession in 2025.

Meanwhile, inflation increased to 2.6%, and the Bank of England governor Andrew Bailey said “uncertainty” caused by the Budget meant interest rates will stay higher for longer.

Shadow business secretary Andrew Griffith said: “Since taking office, the Chancellor has made this country a hostile climate for aspiration, for investment and for growth. Rachel Reeves’s tax-raising spree and trash-talking her economic inheritance are literally killing businesses and jobs.

“If there is a recession – and based on these CBI expectations that seems increasingly likely – it will be one made in Downing Street.

“Labour needs to urgently change course before the damage they are doing becomes even greater.”

Responding to the ONS revising down economic growth between July and September, Reeves said: “The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge. But this is only fuelling our fire to deliver for working people.”