In its latest UK Economic Outlook, the BCC forecast the economy will not return to growth until Q4 2023 and although the economy will grow in 2024, it will be weak as business investment, exports ,and household consumption all remain subdued.
The report said a key contributor to the 2023 economic contraction is a sharp fall in household spending as consumers face rising energy costs, falling real wages, frozen income tax allowances, and higher mortgage payments. A poor outlook for the global economy means exports are also likely to fall, although they will be outstripped by a sharper decline in imports.
The mini-budget in September 2022 is expected to have had a long-term impact on borrowing costs for both businesses and consumers. Alongside the effect of changes in corporation tax and business rates on already dwindling business confidence, this is likely to lead to a 3.0 per cent contraction in firms’ investment in 2023.
Businesses and consumers will continue to face high costs due to inflation, but the upward spiral is now thought to have peaked for Q4 2022. This is down from the previous BCC prediction of 14.0 per cent, thanks in part to the government’s energy price guarantee. The CPI rate is expected to slow to 5.0 per cent in Q4 2023 and finally drop below the Bank of England’s target to 1.5 per cent in Q4 2024. However, this simply means prices will stabilise at a very high level and government plans to reduce energy support after April 2023 could put upward pressure on inflation again.
Overall investment is expected to fall by 1.8 per cent in 2023, with business investment expected to fall even further by 3.0 per cent in 2023, down significantly from a previous prediction of a 0.6 per cent increase. This follows recent BCC research showing significant falls in business confidence in recent months. Household consumption is also expected to fall by 2.3 per cent although government spending is expected to increase by 4.6 per cent.
The overall picture for 2024 showed a return to growth but not at a level that will compensate for the five quarters of a shrinking economy. Net exports, household spending, and business investment will all return to positive growth but with government spending dropping, the recovery will be lacking in strength.
Alex Veitch, director of policy at the British Chambers of Commerce, said it is now clear that the September mini-budget and autumn statement have had a further chilling effect.
“Very few firms will be willing to invest as they face into a wall of higher prices, interest rates and taxes,” he said.
“The very real worry is that the UK will get left behind by our competitors, once the economy emerges from recession, as growth remains so weak.
“But it is not too late to turn this around. With concrete action on infrastructure investment, skills, trade, and green tech we can put the economy in a much stronger position.
“The next Budget, due in March 2023 will be a real acid test of whether the Government fully understands the scale of the problems ahead and is prepared to act.
“In the meantime, the forthcoming announcement on energy bill support for businesses will be watched closely by firms for signs that the Government grasps the size of the challenges they face.”
