Britain's economic recovery is expected to slow as consumers start to feel the impact of higher inflation on their wallets, warned economists.
In its latest quarterly report, the EY Item Club cut its forecast for UK economic growth this year to 4.9% from 5.6%.
The economic forecasting group expects inflation to reach 7% in the spring, its highest level since 1992, meaning a fall in real wages.
EY believes the Bank of England will respond to the rise in inflation by hiking its interest rate to 1% by the end of this year, from 0.5% at present following last Thursday's rise.
However, EY said UK GDP grew 7.3% in 2021, above the 6.8% growth it had forecast previously.
“The forecast shows that the economy’s bounce back in 2021 was stronger-than-expected and Omicron’s economic impact is likely to be temporary and limited," commented Hywel Ball, EY’s UK chair.
"While the economy and UK businesses may have a softer launch pad for growth this year, they will still benefit from a number of tailwinds in 2022 and 2023.
“But blowing in the opposite direction will be a squeeze on household spending power which is expected to be a bigger headwind for the economy than the Omicron variant. Inflation is set to reach its highest level in thirty years by the spring and will be well ahead of pay growth."