The British Chambers of Commerce, of which Business West is a key member, has downgraded its expectations for UK GDP growth for 2022 to 3.5% (from 3.6%) against a deteriorating economic outlook.
Quarterly economic growth is expected to grind to a halt this year before dipping briefly into negative territory as global events continue to weigh heavily on the UK economy.
It now expects the UK inflation rate to reach 10% in Q4 2022, comfortably outpacing average earnings growth. The heightened economic uncertainty and rising costs are also expected to significantly weaken business investment, with 1.8% growth predicted in 2022, down sharply from 3.5% in the previous forecast.
Expectations for growth in 2022, at 3.5% are now less than half the 7.5% growth recorded last year. Quarter-on-quarter GDP is expected to flatline with no growth expected in Q2 and Q3 before contracting by 0.2% in Q4. This negative outlook reflects a combination of soaring inflation, weak business investment, tax rises and the global economic shocks – initially caused by Covid and then compounded by the war in Ukraine. Annual UK economic growth is expected to slow sharply to 0.6% for 2023 before recovering slightly to 1.2% in 2024.
Consumer spending is now forecast to grow at 4% in 2022, a fall from the 4.4% prediction in the first quarter. This reflects the historically high squeeze on real household incomes as inflation far outpaces the forecast 5% growth in average earnings for the year.
Business investment is forecast to grow at 1.8% in 2022, a large downward revision from the previous forecast of 3.5%. The downgrade reflects heightened political and economic uncertainty, and rising cost pressures which are limiting smaller firms’ abilities to invest. The BCC’s survey data for business investment have shown no sign of recovery since the start of the Covid pandemic.
Businesses and consumers face unprecedented inflationary pressures flowing from rising raw material costs, the increase in the energy price cap, and upward pressure on energy and commodity prices. The Consumer Price Index (CPI) inflation rate is expected to reach 10% in Q4 of 2022. This would be the highest since CPI records began in their current form in 1989. CPI inflation is expected to finally fall back to the Bank of England’s 2% target by the end of 2024. At the same time, the Bank of England interest rate is expected to rise to 2% in 2022 and 3% in 2023. These represent significant shifts from the 1% and 1.5% rates previously forecast in Q1.
Commenting on the forecast, Matt Griffith, Director of Policy at Business West, said, “It is vital that government also supports existing strong economic areas like the West Country, and makes sure we have the level of investment in infrastructure, skills, transport and housing we need.
“Recent signals from central government seem to suggest it is not pushing our areas as much as it could on things like housing, providing sufficient employment space and strong local plans. This is not glamorous, but not delivering here risks long-term underperformance and sluggish future growth in incomes and jobs for our people.”
Key points in the forecast:
- UK GDP growth forecast for 2022 is 3.5%, 0.6% in 2023 and 1.2% in 2024
- Following Q1 2022 growth of 0.8%, quarter-on-quarter GDP growth is forecast to come to a halt with zero growth in Q2 and Q3, before a 0.2% contraction in Q4 2022.
- Household consumption forecast is for growth of 4% in 2022, growth of 0.6% for 2023 and 1.2% in 2024
- Business investment forecast is to grow by 1.8% in 2022 before more than halving to 0.8% in 2023, amid the end of the super deduction and the corporation tax rise, and then rising to 1.5% in 2024
- BCC expects export growth of 3% in 2022, 2.3% in 2023 and 1.6% in 2024, compared to import growth of 6.9%, -2.7% and 1.7%
- BCC expects UK unemployment rate of 3.8% in 2022, 3.9% in 2023 and 2024
- CPI inflation is forecast to peak at 10% in Q4 2022, before easing to 3.5% by the end of 2023. Inflation is expected to drop back to the Bank of England’s 2% target by Q4 2024
- UK official interest rates are expected to rise to 2% by Q4 2022 and then to 3% in Q4 2023, ending 2024 at the same level.
Pictured above: Matt Griffith, Director of Policy at Business West