The British economy will “stop” before shrinking in the second half of this year as rising inflation and tax hikes take their toll, according to forecasts from one of the UK’s leading business groups.
Consumers and businesses will pay a high price for Russia’s invasion of Ukraine and persistent delays in China’s supply, the British Chamber of Commerce (BCC) said as it lowered its growth prospects. next year at 0.6%.
With petrol reaching a new high of £ 1.80 a liter and petrol prices showing no signs of slowing down, the BCC said inflation is likely to reach 10% by the end of the year.
The sad outlook coincided with a previous analysis by the Organization for Economic Co-operation and Development (OECD), although the Paris-based think tank said the UK was on track. even harder in 2023.
OECD experts said the UK’s growth rate was expected to move from the second-fastest-growing economy this year in the G7 industrialized nations group after Canada to the slowest-growing economy when GDP growth will slow to zero next year.
Analysts said forecasts are likely to scare consumers and depress the housing market, which has slowed sharply in recent months.
Consumer confidence has already fallen to record lows in response to an unprecedented reduction in the cost of living that is expected to continue for the rest of the year despite the additional £ 15bn of announced welfare controls and energy subsidies. by Rishi Sunak last month.
Danni Hewson, an analyst at stockbroker AJ Bell, said cuts in growth forecasts that put the UK at the bottom of the industrialized world had put downward pressure on London stocks.
“The housing market is cooling, the construction sector is slowing down and consumer confidence seems clearly anemic,” he said. “There is growing pressure for more government intervention, and the terrible warnings about the prospect of a non-growth of 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 prominent. “
The BCC said the government’s efforts to boost business investment had fallen over the past year and would suffer a setback next year, with the level of growth halved to 0.8% in 2023.
“The downturn in business investment is particularly worrying. Urgent action is vital here, and we are having constructive talks with the government on its review of capital bonuses and other policies to encourage business investment,” he said. say the BCC report.
“The downturn reflects increased political and economic uncertainty and rising cost pressures that are limiting the investment capacity of smaller businesses. Business investment survey data show no sign of recovery from the onset of the Covid pandemic “.
A tight labor market will mean that labor demand will remain high and unemployment will be low this year and in 2023, but wage increases below inflation will mean that the current cost of living crisis will depress consumer spending . And BCC economists fear that inflation will take months to control.
“We anticipate that if trends continue, inflation will only return to the Bank of England’s 2% target rate by the end of 2024, which will mean a prolonged period of difficulty for the UK.”
New pressure on consumers is expected to come from rising interest rates, which the Bank of England will impose to curb rising prices.
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The BCC said the central bank’s base rate would rise to 2% by the end of this year and 3% by 2023, bringing mortgage rates to levels not seen before the crash. 2008 financial statement.
BoE officials are meeting next week to make their own assessment of the economic outlook and the bank’s base rate is expected to rise from 1% to 1.25%.