UK business leaders expect the country to enter recession before the end of the year and have called for pandemic-style emergency government support to help businesses with energy costs in particular.
The economy will contract in the second, third and fourth quarters of 2022, according to new forecasts from the British Chambers of Commerce (BCC), with inflation reaching 14% by the end of the year.
The BCC issued its downgraded forecasts last night, predicting the second quarter will have contracted 0.1%, with a similar decline in Q3 and a 0.3% tightening in Q4, before a slight increase in growth of 0.2% for the first three months of 2023.
Deteriorating economic conditions were cited as the cause of its “anaemic” growth forecasts, including rising energy costs, a decline in household spending and real wages, weaker export prospects amid a pessimistic global economic outlook, poor investment conditions and weakening business confidence and cashflow.
“Many of these issues were initially caused by the global response to Covid-19 and have been further compounded by the war in Ukraine,” the BCC said.
Business investment is estimated to grow 2.7% in 2022, driven by building and construction, before shrinking to 0.6% next year.
Alex Veitch, the BCC’s director of policy, said: “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.”
He said tackling inflationary pressures must be at the top of the new Prime Minister’s inbox when they take up their position next Monday.
“Action is needed now, and the BCC has set out a comprehensive plan for government to provide vital support to firms,” Veitch said.
“Along with taxation and labour measures, the BCC business support plan includes key asks to help businesses with spiralling energy costs. These include Covid-style support by introducing a government emergency energy grant, a temporary cut in VAT on energy bills to 5% to reduce costs for firms and increased regulation of the energy market for businesses by Ofgem.
“Through our extensive research and forecast work, we know the problems currently facing businesses. Time is fast running out, the government must step up to the plate and do what is needed to protect businesses, livelihoods and jobs.”