In its latest Economic Forecast the BCC has again downgraded its expectations for UK GDP growth for 2022 to 3.3 per cent (from 3.5 per cent in Q2) against a deteriorating economic outlook and said it expected inflation to reach 14 per cent by the end of 2022 – 4 percent higher than it forecast in its last report.
In the short term, the BCC is now forecasting a recession for the UK economy with three consecutive quarters of contraction between Q2 and Q4 in 2022. Annual expectations for GDP growth also continued to decline, with 3.3 per cent forecast for 2022, significantly below the 7.4 per cent growth recorded in 2021. However, unlike the Bank of England, the BCC expects the economy to grow in 2023, albeit at a very low 0.2 per cent, with a slight increase to 1 per cent in 2024.
These predictions for GDP growth are in light of deteriorating economic conditions; rising energy costs, a decline in household spending and real wages; weaker export prospects and a pessimistic global economic outlook; poor investment conditions and weakening business confidence and cash flow. Many of these issues were initially caused by the global response to COVID-19 and have been further compounded by the war in Ukraine.
The report also noted that businesses and consumers will continue to face exceptionally high costs as rampant inflation spirals upwards in 2022. Increased and more sustained inflationary pressure is now forecast for Q4 2022, as the consumer price index (CPI) inflation rate is expected to reach a peak of 14 per cent. This is up from the previous, already high, projected rate of 10 per cent. The CPI rate is expected to slow to 5 per cent in 2023, and finally return to the Bank of England’s target of 2 per cent in 2024.
The forecast for the Bank of England’s interest rate remains unchanged; the rate is expected to increase from 2 per cent in 2022 to 3 per cent in 2023 and 2024. Inflation is expected to outpace growth of earnings by over 3:1 in Q4 2022, with average earnings increasing by 4.5 per cent in Q4 2022.
Business investment is set to grow at 2.7 per cent in 2022, an upward revision from the Q2 forecast of 1.8 per cent. This is likely to be driven by growth in building construction rather than spending on machinery or equipment. However, it is expected to increase by only 0.6 per cent in 2023, slightly down from the 0.8 per cent growth predicted in Q2.
Overall investment is expected to grow by 4 per cent this year but shrink by 0.4 per cent in 2023 before rebounding to 1.1 per cent in 2024.
Consumer spending is now forecast to grow at 3.8 per cent in 2022, a fall from the 4 per cent predicted in Q2.
Alex Veitch, director of policy at the British Chambers of Commerce, said the BCC’s latest quarterly economic forecast will not be of any comfort to either consumers or businesses.
“The extreme inflationary pressures already present are only likely to increase as we head towards Christmas; with the UK economy already thought to be in recession. Tackling these pressures must be at the top of the new Prime Minister’s inbox when they take up their position next week,” he said.
“We have revised our projected inflation rate upwards by 4 percentage-points to a new high of 14 per cent. Inflation is running rampant, and it is not only impacting the cost of doing business, but also the ability of some firms to keep their doors open. In January, the BCC found that 23 per cent of businesses surveyed were looking to scale down or even consider closure in response to rising costs.
“With prices spiralling out of control, they are expected to race ahead of earnings growth by a ratio of 3:1 in Q4 2022. This will undoubtedly impact consumer confidence, another key concern for businesses.
“Action is needed now, and the BCC has set out a comprehensive plan for Government to provide vital support to firms.
“Along with taxation and labour measures, the BCC business support plan includes key asks to help businesses with spiralling energy costs. These include Covid-style support by introducing a Government Emergency Energy grant, a temporary cut in VAT on energy bills to 5 per cent to reduce costs for firms and increased regulation of the energy market for businesses by Ofgem.
“Through our extensive research and forecast work, we know the problems currently facing businesses. Time is fast running out, the Government must step up to the plate and do what is needed to protect businesses, livelihoods and jobs.”
