Economic forecasters have lowered expectations for the UK’s recovery, saying more pain could follow depending on the severity of the Omicron variant of Covid-19 and government measures to avoid a “cliff” for business investment.
The Confederation of British Industry, the UK’s leading business lobby, said in June it expected economic growth of 8.2%.
But on Monday it lowered that forecast to 6.9% and revised its forecast for 2022 from 6.9% to 5.1%.
She attributed the more pessimistic prospects to weaker than expected production since her last forecast Disruption of the supply chain among the factors that have slowed the economy.
The auditing firm KPMG is forecasting even more gloomy, anticipating growth of at best 4.2% next year, even if the Omicron variant turns out to be a “false alarm”.
It said everyone put on weight government-imposed restrictions stopping the spread of the variant will further hinder recovery.
Growth would slow to 2.6% if moderate measures like social distancing are required, KPMG predicted, while production could drop to 1.8% if vaccines against Omicron prove ineffective and lockdowns are put in place in January and February .
Both KPMG and the CBI also raised concerns about the lack of business investment, which they cited as an obstacle to a sustainable recovery in the longer term. New government action will be needed to avoid a sharp drop in business investment in 2023 if temporary measures in support of business are withdrawn, the CBI said.
“The UK’s New Year’s resolution must be to give companies the confidence to grow,” said CBI Director General Tony Danker.
“We should take a closer look at the potential of the economy and seize the moment. From conversations with companies of all sizes, I know that they have an ambitious investment mindset and strive to implement growth plans.
“But while intentions are thawed, we’re facing a cliff in 2023.”
The CBI cited the Treasury Department’s plans that “Great deduction“, A tax break of 25 billion
“As a result, business investment will continue to lag” [behind] other advanced economies, ”said the employers lobby group.
Jon Holt, CEO of KMPG UK, shared the concern. “Long-term economic growth continues to depend on the UK’s ability to increase productivity, reduce uncertainty and give businesses the confidence they need to invest,” he said.
“We need to create the conditions to accelerate business investment in technology and fuel the UK’s recovery.”
The CBI also said the recovery in exports is likely to be lackluster after describing growth so far this year as disappointing.
Household spending would remain the main engine of the economy, said the employers’ organization, which would generate 90% of growth in 2022 and two-thirds of gross domestic product in 2023.
Consumer spending would be supported by households reducing the excess savings they had accumulated during the pandemic.
She predicted that unemployment would rise only slightly as a result of the end of the government’s vacation schedule and that the unemployment rate would return to pre-crisis levels of 3.8% by the end of 2023.
Rain Newton-Smith, Chief Economist at the CBI, said, “We expect the economic recovery to be fairly strong, although the advent of Omicron understandably poses another downside risk to our outlook. Ultimately, this underscores the need for an equitable distribution of vaccines around the world – one that supports lives and livelihoods, liberates our international travel sector and also boosts trade. “
The CBI expects current supply-side restrictions to ease by the middle of next year, with inflation peaking at just over 5% in April.
Despite the inflation risks, KPMG said the uncertainty surrounding Omicron meant the Bank of England is unlikely to hike rates in December. However, by the end of 2023, tariffs are likely to rise to 1-1.25% to prevent wage growth from accelerating as the recovery regains momentum.