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The UK is expected to ‘plunge’ into recession before the year is up, according to the British Chambers of Commerce on Thursday, as it downgraded its outlook for UK economic growth.
The BCC now forecasts three consecutive quarters of contraction between the second and fourth quarter of 2022.
It downgraded its expectations for UK annual gross domestic product growth to 3.3%, compared to its 3.5% forecast in the second quarter. This assumes growth will slow markedly from the 7.4% recorded in 2021.
In contrast with the Bank of England, it anticipates the UK economy will grow very slightly, by 0.2%, in 2023, and by 1% in 2024.
‘These anaemic 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 cashflow,’ the BCC explained.
Many of these factors were caused by ramifications of the global response to the Covid-19 pandemic, and were exacerbated by the war in Ukraine, it said.
The BCC also revised its projection for inflation upwards to 14% in the final quarter of the year, having previously expected 10%.
‘Our 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,’ said Alex Veitch, director of policy at the BCC.
It expects inflation to slow down to 5% in 2023, before returning to the BoE's 2% target in 2024.
The BCC also warns quickening inflation and negative economic growth are likely to hit UK consumers' willingness to spend.
‘With prices spiralling out of control, they are expected to race ahead of earnings growth by a ratio of 3:1 in [the fourth quarter of this year]. This will undoubtedly impact consumer confidence, another key concern for businesses,’ Veitch cautioned.
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