One of the UK’s leading business groups has predicted that Britain’s economy will ‘shut to a halt’ before contracting in the second half of this year as inflation soars and inflation rises. taxes wreak havoc.
Consumers and businesses will pay a high price for Russia’s invasion of Ukraine and continued delays in supplies from China, the British Chambers of Commerce (BCC) said as they downgraded their outlook for growth next year to 0.6%.
As petrol hits a new high of £1.80 a liter and petrol prices show no sign of easing, the BCC says inflation is expected to hit 10% before the end of the year .
The bleak forecast was consistent with earlier analysis from the Organization for Economic Co-operation and Development (OECD), although the Paris-based think tank said the UK was on course for an even tougher race in 2023.
OECD experts have said the UK’s growth rate is set to drop from the second-fastest growing economy this year in the G7 group of industrialized nations after the slowest-growing Canada when the GDP growth will slow to zero next year.
Analysts said the forecast was likely to spook consumers and depress the housing market, which has slowed markedly in recent months.
Consumer confidence has already fallen to record lows in response to an unprecedented cut in the cost of living which is set to continue for the rest of the year despite another £15billion in welfare checks and energy subsidies announced by Rishi Sunak last month.
Danni Hewson, an analyst at stockbroker AJ Bell, said cuts to growth forecasts that put the UK at the bottom of the industrialized world had put downward pressure on stocks in London.
“The housing market is cooling, the construction sector is slowing and consumer confidence looks markedly anemic,” she said. “There is growing pressure for further government intervention, and dire warnings about the prospect of no growth for the UK economy next year will be smart. The whole world is paying the price for the invasion of Ukraine by Russia but, according to the OECD, the United Kingdom has been singled out.
The BCC said the government’s efforts to boost business investment had fallen flat over the past year and would suffer a setback next year, with the level of growth halving to just 0.8% in 2023.
“The projected decline in business investment is particularly concerning. Urgent action is essential here, and we are having constructive conversations with the government about its review of capital cost allowances and other policies to encourage business investment,” the BCC report said. .
“The downgrade reflects heightened political and economic uncertainty and growing cost pressures that limit the ability of small businesses to invest. Business investment survey data has shown no signs of recovery since the start of the Covid pandemic.
A tight labor market will mean that demand for workers remains high and unemployment is low this year and in 2023, but wage increases below inflation will mean that the current cost of living crisis depresses consumer spending . And BCC economists fear that inflation will take months to be brought under control.
“We expect that if trends continue, inflation will not return to the Bank of England’s 2% target rate until the end of 2024, implying a prolonged period of difficulty for the UK.”
Additional pressure on consumers is expected to come from higher interest rates, which the Bank of England will impose to limit rising prices.
The BCC said the central bank’s base rate would rise to 2% by the end of this year and 3% in 2023, pushing mortgage rates to levels not seen since before the 2008 financial crash.
BoE officials meet next week to make their own assessment of the economic outlook and are expected to raise the bank’s base rate by 1% to 1.25%.