UK growth will 'grind to a halt' in 2022, inflation to hit 10% - BCC

UK economic growth will "grind to a halt" this year before falling briefly into contractionary territory, according to the British Chambers of Commerce.

The BCC cut its 2022 growth forecast to 3.5% from 3.6% against "a deteriorating economic outlook". This is down from 7.5% growth a year earlier. The business group also said inflation could hit 10% in the final quarter of the year, "comfortably" outpacing average earnings growth.

It expects heightened economic uncertainty and rising costs to weaken business investment to 1.8% growth in 2022, down from a previous forecast of 3.5%. Meanwhile, quarter on quarter GDP is expected to flatline with no growth in the second and third quarters, before a contraction of 0.2% in the final quarter of the year.

"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," the BCC said.

Annual UK economic growth is expected to slow sharply to 0.6% for 2023 before recovering slightly to 1.2% the year after.

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, Veitch said 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," he said.

On Wednesday, the Organisation for Economic Co-operation and Development (OECD) said in its latest Economic Outlook that the UK was set to experience the slowest growth in the developed world next year.

It expects the UK economy to grow 3.6% this year, with no growth forecast for next year. That means it will go from being the second-fastest growing economy in the G7 to the slowest in 2023.

Previously, the Paris-based think tank had forecast growth of 4.7% for this year and 2.1% for next year. However, it now expects the UK to suffer more than any other major industrial country from the impact of the Ukraine conflict.