UK economic growth is expected to halve this year amid soaring inflation, major tax rises, and global shocks – including Russia’s invasion of Ukraine.
The British Chambers of Commerce has downgraded its expectations for UK GDP growth in 2022 to 3.6%, from 4.2% in its previous forecast in December 2021 and less than half the growth of 7.5% 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% in 2022, down from its previous forecast of 6.9%. 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.
• Business investment is forecast to grow at 3.5% in 2022. This is down from the previous forecast of 5.1% and materially lower than the Bank of England’s latest projection of 13.75%. 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.
