UK economy forecast to ‘run out of steam in the coming months’

The British Chambers of Commerce downgraded expectations for economic growth this year.

04 March 2022

A business group has downgraded its expectations for economic growth this year amid soaring inflation, tax rises and global shocks, including Russia’s invasion of Ukraine.

The British Chambers of Commerce (BCC) predicted growth of 3.6%, down from 4.2% in its previous forecast in December, warning the UK economy is forecast to run out of steam in the coming months.

The BCC said 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% this year, down from its previous forecast of 6.9%, reflecting the “historic squeeze” on real household incomes from high inflation, said the BCC.

Business investment is forecast to grow at 3.5%, down from the previous forecast of 5.1%, amid the expected weakening in investment intentions from rising cost pressures, higher taxes and falling confidence amid deteriorating UK and global outlooks, including the impact of Russia’s invasion of Ukraine.

Suren Thiru, head of economics at the BCC, said: “Our latest forecast signals a significant deterioration in the UK’s economic outlook.

“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.

“Our latest outlook suggests a legacy of Covid, and Brexit, is an increasingly unbalanced economy with a growing reliance on household spending to drive growth. Such economic imbalances leave the UK more exposed to economic shocks and reduces our productive potential.

“The downside risks to the outlook are increasing. Russia’s invasion of Ukraine could drive a renewed economic downturn if it stalls activity by triggering a sustained dislocation of supply chains or a more significant inflationary surge.

“Tightening monetary and fiscal policy too aggressively risks weakening the UK’s growth prospects further by undermining confidence and damaging households’ and firms’ finances.”

A Treasury spokesperson said: “We know global developments are creating significant economic uncertainty but the support we have provided throughout the pandemic has put us in a strong position to deal with these challenges, with the fastest growth in the G7 last year and the unemployment rate close to pre-pandemic levels.

“We are striking the right balance, with over £20 billion to help with the cost-of-living this financial year and next, and grants, loans and tax reliefs for businesses.

“Boosting growth and productivity remains a key aim for this government and we will continue to invest in capital, people and ideas to make that a reality.”

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