Further downgrades to UK growth a risk of recession increases - EY

Inflation, geopolitical uncertainty, skills challenges and increasing supply chain issues are continuing to squeeze the outlook for business investment.

That 's according to the new EY ITEM Club Spring Forecast.

UK business investment is now forecast to grow 10 per cent this year, having been expected to grow 12.7 per cent in February 's Winter Forecast and 11.3 per cent in March 's Interim Forecast.

This represents an estimated £5.5bn shortfall from February 's forecast. With a sluggish recovery last year presenting a disappointing starting point for 2022, investment is now not expected to reach pre-pandemic levels until the end of this year.

The EY ITEM Club has also downgraded the outlook for UK growth overall, with UK GDP now expected to grow 4.1 per cent in 2022 - down from the 4.2 per cent predicted in March - before growing 1.9 per cent in 2023 and 2.2 per cent in 2024.

Growth will be dependent on under-pressure households continuing to spend by saving less and borrowing more - and the EY ITEM Club says that the possibility they may not raises the risk of recession.

Hywel Ball (pictured), EY UK chair, said: “Uncertainty about the pandemic has been replaced by geopolitical uncertainty, which has also had consequences for the cost of capital goods and supply chain frictions.

“The temporary super-deduction tax incentive should support an investment pick-up this year, but its impact is being countered by strong headwinds.

“Some businesses also appear to be grappling with labour shortages and aren 't always able to access the talent needed to identify or deliver investment opportunities.

“At the same time, many large businesses are actually well-placed to invest, having paid down bank debt during the pandemic and built cash holdings which could can be used to fund new projects. ”

The EY ITEM Club estimates that, as of February 2022, UK corporates had accumulated approximately £150bn in extra cash holdings - 5.5 per cent of GDP - compared to what they would have had access to had pre-pandemic deposit trends continued.

The UK unemployment rate fell to 3.8 per cent in the three months to February 2022, but the number of 'inactive ' working-aged people is 490,000 higher than two years ago, mainly because of rising numbers of people on long-term sick leave or taking early retirement.

Employment is down by over half a million people compared to pre-pandemic levels.