UK economic growth is expected to halve this year amid soaring inflation, major tax rises, and global shocks - including Russia’s invasion of Ukraine, British Chamber of Commerce (BCC) said today (4).
In a recently-released statement, BCC has downgraded its expectations for UK GDP growth in 2022 to 3.6 percent, from 4.2 percent in its previous forecast in December 2021 and less than half the growth of 7.5 percent recorded last year.
The downgrade largely reflects a deteriorating outlook for consumer spending and a weaker than expected rebound in business investment.
Consumer spending is forecast to grow at 4.4 percent in 2022, down from its previous forecast of 6.9 percent. The downgrade reflects the historic squeeze on real household incomes from high inflation. Inflation is projected to outpace wage growth until Q2 2024, maintaining the squeeze on household finances. Weakening consumer confidence is expected to limit households’ willingness to support spending by running down savings built-up during Covid, BCC said.
Business investment is forecast to grow at 3.5 percent in 2022, down from the previous forecast of 5.1 percent and materially lower than the Bank of England’s latest projection of 13.75 percent. The downgrade reflects the expected weakening in investment intentions from rising cost pressures, higher taxes and weakening confidence amid deteriorating UK and global outlooks, including the current impact of Russia’s invasion of Ukraine.
Rising raw material costs, the increase in the energy price cap, the reversal of the hospitality VAT cut and upward pressure on energy and commodity prices from the impact of Russia’s invasion of Ukraine are expected to lift CPI inflation to a peak of 8 percent in Q2 2022.
The impact of the invasion and rising raw material costs are also projected to keep UK inflation higher for longer.
Commenting on the forecast, Suren Thiru, Head of Economics at the British Chambers of Commerce, said, “The UK economy is forecast to run out of steam in the coming months as the suffocating effect of rising inflation, supply chain disruption and higher taxes weaken key drivers of UK output, including consumer spending and business investment.
“Russia’s invasion of Ukraine is likely to weigh on activity by exacerbating the current inflationary squeeze on consumers and businesses and increasing bottlenecks in global supply chains."
Brian McLister