Energy and food prices in the UK are constantly rising. This has serious consequences for the economy. The industry is urging the government to act quickly.
In view of the inflation, the British industry association CBI has drastically revised its economic forecasts downwards.
The organization only expects growth of 3.7 percent for 2022. So far it was 5.1 percent. In the coming year, the economy is expected to grow by one percent – previously the association had assumed an increase of 3 percent. Household spending would decrease significantly, a CBI statement said on Monday.
“It doesn’t take much to push us into a recession,” said association chief Tony Danker. “Even if that doesn’t happen, it will still feel like a recession for too many people.” Businesses are struggling with rising costs and people on lower incomes are struggling to pay bills and buy groceries. The government must take urgent measures, Danker demanded. “Inaction this summer would set in stone a stagnant economy in 2023 and a recession would be a very realistic concern.”
According to current figures, the British economy shrank again in April. After a 0.1 percent decline in gross domestic product (GDP) in the previous month, GDP fell by 0.3 percent in April, the ONS statistics office announced in London on Monday. On average, analysts had expected a slight increase in economic output.
Warning of cancellation of Brexit rules
The CBI association warned the government not to unilaterally revoke the Brexit rules for Northern Ireland agreed with the EU and thus risk a trade war with the Union. In addition, the government must act as an honest mediator between railway companies and unions so that strikes and travel chaos in the summer would be averted. Approval times for offshore wind farms would have to be reduced to one year, and support measures for investors and companies would have to be expanded. It is also important to fight the shortage of skilled workers more vigorously.
According to CBI estimates, households’ real disposable income will fall by 2.3 percent over the course of the year – the sharpest rate since the mid-1950s. Inflation stays high. Also because of the energy prices, the association expects an increase of 8.7 percent in October. The inflation is being driven by supply chain problems, rising commodity prices and the Russian war against Ukraine. “The result is a historic decline in household incomes that will reduce consumer spending,” the association said. Only at the end of 2023 will the inflation rate fall back to 1.9 percent and thus to the level of around 2 percent that the central bank is aiming for.
“The war in Ukraine, a global pandemic, ongoing supply chain strains – and before that, Brexit – have proved a toxic brew for Britain’s economic growth,” said CBI Chief Economist Rain Newton-Smith. “The bottom line is that the prospects for UK exports remain far worse than for our global competitors.” Prime Minister Boris Johnson has repeatedly claimed that the UK economy has proved stronger than the other G7 countries in the wake of the pandemic.
The British Chambers of Commerce had previously lowered its economic expectations significantly.
