9 minute read
Economy
New warning for firms as BCC makes its latest forecast
Businesses in Coventry and Warwickshire have been warned that inflation will hit ten per cent before the end of the year.
But, according to the latest forecast from the British Chambers of Commerce (BCC), the economy will grow by 3.5 per cent in 2022 which is just a slight revision down from its previous forecast of 3.6 per cent.
According to the forecast, quarter-on-quarter GDP is expected to flatline with no growth expected in quarter two and quarter three before contracting by 0.2 per cent in quarter four.
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 per cent for 2023 before recovering slightly to 1.2 per cent in 2024.
Consumer spending is now forecast to grow at four per cent in 2022, a fall from the 4.4 per cent prediction in the first quarter. This reflects the historically high squeeze on real household incomes as inflation far outpaces the forecast five per cent growth in average earnings for the year.
Business investment is forecast to grow at 1.8 per cent in 2022, a large downward revision from the previous forecast of 3.5 per cent. 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 has 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 per cent in quarter four 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 two per cent target by the end of 2024.
At the same time, the Bank of England interest rate is expected to rise to two per cent in 2022 and three per cent in 2023. These represent significant shifts from the one per cent and 1.5 per cent rates previously forecast in quarter one.
Sean Rose, head of policy at the Coventry and Warwickshire Chamber of Commerce, said: “The latest figures shows a slight reduction in the forecast growth for 2022 but also the stark warning of inflation increasing to ten per cent before the end of the year.
“There is a real feeling among businesses across the patch that there are lots of opportunities for growth but with fundamental issues around rising costs and recruitment, they are being held back.
“It’s vital that they are given renewed confidence to invest and grow in order to drive the economy forward.”
Commenting on the forecast, Alex Veitch, Director of Policy at the British Chambers of Commerce, said:“Our latest forecast indicates that the headwinds facing the UK economy show little sign of reducing with continued inflationary pressures and sluggish growth. The war in Ukraine came just as the UK was beginning a Covid recovery; placing a further squeeze on business profitability.
“The forecast drop in business investment is especially concerning. It is vital that urgent action is taken here, and we are having constructive conversations with the government about its review of capital allowances and other policies to incentivise business investment.
“With inflation forecast to race ahead of wages, we are concerned about a dip in consumer spending which would further impact businesses and hamper growth. We forecast that if trends continue, inflation will only return to the Bank of England’s target rate at the end of 2024, implying a prolonged period of difficulty for the UK.
“Against this backdrop, the government must put in place stable and supportive policies that help businesses pull the UK out of this economic quagmire. Firms must be given confidence to invest, only then can they drive the growth the economy so desperately needs.”
growth but with fundamental issues around rising
costs and recruitment, they are being held back.❜❜ Key points in the forecast:
3 UK GDP growth forecast for 2022
is 3.5%, 0.6% in 2023 and 1.2% in 2024
3 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.
3 Household consumption forecast is
for growth of 4% in 2022, growth of 0.6% for 2023 and 1.2% in 2024
3 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
3 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%
3 BCC expects UK unemployment
rate of 3.8% in 2022, 3.9% in 2023 and 2024
3 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
3 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.
Ease the squeeze says the Chamber
The Coventry and Warwickshire Chamber of Commerce has backed calls to ‘ease the squeeze’ on firms as new figures revealed the economy took a dip in April.
The latest GDP figures – which measure the UK economy – showed a 0.3 per cent fall in April on the back of a 0.2 per cent decrease in March.
Factors such as surging inflation, supply chain disruption and skills shortages have been cited as reasons for the dip and the Coventry and Warwickshire Chamber of Commerce says businesses in the region need help.
Sean Rose, head of policy at the Coventry and Warwickshire Chamber of Commerce, said: “It’s been a tough few months for businesses and consumers and with the British Chambers of Commerce (BCC) forecasting that inflation will reach ten per cent, it’s going to continue to be challenging.
“We’d all hoped that as Covid-19 restrictions eased, it would be an opportunity for the whole economy to flourish but there a range of factors that have seen GDP fall in both March and April.
“One of those factors is rising energy costs and the BCC is calling on Government to cut VAT on energy bills for firms to five per cent to help ease the cost of doing business, which we support.
“I’d also strongly urge companies to get in touch with their Chamber of Commerce
if they need support in coming through this difficult period.”
David Bharier, Head of Research at the BCC, said: “The fall of 0.3 per cent in April, following a 0.2 per cent decrease in March, highlights the increasing stress the UK economy is under. All main sectors have seen a fall in growth, the first time since January 2021.
“This decline is the inevitable outcome of surging inflation, supply chain disruption and widespread skills shortages.
“Businesses from all sectors are facing unprecedented rises in raw material costs, soaring energy bills, and wage pressures. The introduction of an increase to employer National Insurance Contributions in April has only further added to firms’ woes.
“This declining output comes off the back of two years of significant damage sustained by small businesses, whose weakened cash positions mean that they are in a far worse position to stomach further pressure. The global aspects to all these problems mean they are likely to weigh heavily on the UK’s prospects for growth for some time.
“Output in consumer-facing services increased by 2.6 per cent in the month, reflecting increased consumer spend on hairdressing and food services. However, the sector remains below pre-pandemic levels, highlighting the significant damage sustained from shutdowns and restrictions.
“Declining business investment remains a serious cause for concern and urgent Government action is needed to halt this fall. Cutting VAT on businesses’ energy bills to five per cent would ease the squeeze on firms’ cashflow and give them some room for manoeuvre.” Businesses from ❛❛
The introduction of an increase to employer
National Insurance
Contributions in April has only further added
to firms’ woes. ❜❜
Low unemployment – the success story that could be holding back growth
Low unemployment continues to be one of the success stories of the UK economy, according to business leaders in Coventry and Warwickshire.
But the Coventry and Warwickshire Chamber of Commerce say the shortage of skilled people to fill vacant roles will continue to hold back growth.
The unemployment rate stood at 3.8 per cent from February to April while vacancies reached a new high of 1.3 million across the UK.
Sean Rose, the head of policy at the Coventry and Warwickshire Chamber of Commerce, said firms across the patch are struggling to recruit.
He said: “When you think back to the early days of the Covid-19 pandemic, there was a major concern that the unemployment rate was going to increase massively.
“The interventions made by the Government and the incredible job that businesses did in the most testing of circumstances helped to mitigate that and, thankfully, the rate has remained very low.
“However, this is having a knock-on effect for businesses who are struggling to fill available roles which is hampering their ability to grow.
British Chambers of Commerce Head of People Policy, Jane Gratton, said: “An increasingly tight labour market means it’s much harder for employers to fill job vacancies – impacting on their ability to operate normally and retain skills in the business.
“The further rise in the employment rate, together with drop in the unemployment rate are good news but they also reflect how little room for manoeuvre there is for unfilled vacancies on the ground.
“With a new record set for the number of vacancies, and no easy way to fill them for many companies, labour shortages are likely to continue to damage the UK’s growth prospects.
“Despite recruitment difficulties, the damage to firms’ finances from soaring inflation and rising national insurance will limit the extent to which wages can continue rising.
“We need to find ways to bring people back into the UK labour market. Flexible working practices, rapid re-training opportunities and a focus on workplace health can support many economically inactive people to return to the workplace.
