Testing times ahead as quarterly growth dries up - British Chambers
Quarterly economic growth is expected to grind to a halt this year before dipping briefly into negative territory as global events continue to weigh heavily on the UK economy, according to a new report released today.
The British Chambers of Commerce?has downgraded its expectations for UK GDP growth for 2022 to 3.5 per cent (from 3.6 per cent) against a deteriorating economic outlook.
It now expects the UK inflation rate to reach 10 per cent in Q4 2022, comfortably outpacing average earnings growth.
The heightened economic uncertainty and rising costs are also expected to significantly weaken business investment, with 1.8 per cent growth predicted in 2022, down sharply from 3.5 per cent in the previous forecast.
Expectations for growth in 2022, at 3.5 per cent are now less than half the 7.5 per cent growth recorded last year.
Quarter on quarter GDP is expected to flatline with no growth expected in Q2 and Q3 before contracting by 0.2 per cent in Q4.
This negative outlook reflects a combination of soaring inflation, weak business investment, tax rises and the global economic shocks - initially caused by Covid and then compounded by the war in Ukraine.
Annual UK economic growth is expected to slow sharply to 0.6 per cent for 2023 before recovering slightly to 1.2 per cent in 2024.
Consumer spending is now forecast to grow at 4 per cent in 2022, a fall from the 4.4 per cent prediction in the first quarter.
Business investment is forecast to grow at 1.8 per cent in 2022, a large downward revision from the previous forecast of 3.5 per cent.
The downgrade reflects heightened political and economic uncertainty, and rising cost pressures which are limiting smaller firms ' abilities to invest.
The BCC 's survey data for business investment have shown no sign of recovery since the start of the Covid pandemic.
Businesses and consumers face unprecedented inflationary pressures flowing from rising raw material costs, the increase in the energy price cap, and upward pressure on energy and commodity prices.
Alex Veitch (pictured), director of policy at the British Chambers of Commerce, said:? “Our latest forecast indicates that the headwinds facing the UK economy show little sign of reducing with continued inflationary pressures and sluggish growth. The war in Ukraine came just as the UK was beginning a Covid recovery; placing a further squeeze on business profitability.
“The forecast drop in business investment is especially concerning. It is vital that urgent action is taken here, and we are having constructive conversations with the government about its review of capital allowances and other policies to incentivise business investment.
“With inflation forecast to race ahead of wages, we are concerned about a dip in consumer spending which would further impact businesses and hamper growth. We forecast that if trends continue, inflation will only return to the Bank of England 's target rate at the end of 2024, implying a prolonged period of difficulty for the UK.
“Against this backdrop, the government must put in place stable and supportive policies that help businesses pull the UK out of this economic quagmire. Firms must be given confidence to invest, only then can they drive the growth the economy so desperately needs. ”