UK economic growth is expected to halve this year amid soaring inflation, major tax rises, and global shocks including Russia’s invasion of Ukraine, warns the British Chambers of Commerce (BCC).
The BCC has downgraded its expectations for UK GDP growth in 2022 to 3.6% from 4.2% in its previous forecast in December 2021. This would be less than half the growth of 7.5% recorded last year.
It says business investment is forecast to grow at 3.5% in 2022, down from the previous forecast of 5.1%.
The BCC says that rising raw material costs, the increase in the energy price cap, the reversal of the hospitality VAT cut and upward pressure on energy and commodity prices from the impact of Russia’s invasion of Ukraine will lift inflation.
The business group forecasts inflation reaching a peak of 8% in Q2 2022, the highest rate since July 1991. The BCC also projects that UK interest rates will double over the course of this year, from 0.5% to 1%.
Suren Thiru, Head of Economics at the BCC, said:
‘Our latest outlook suggests a legacy of COVID and Brexit is an increasingly unbalanced economy with a growing reliance on household spending to drive growth. Such economic imbalances leave the UK more exposed to economic shocks and reduces our productive potential.’