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Supply woes to hit UK recovery and slow growth

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·3 min read
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Supply woes to hit UK recovery and slow growth
Trade is forecast to lag significantly behind the wider recovery, as UK exports are expected to fall by 2.8% this year, according to the BCC. Photo: Gareth Fuller/PA Images via Getty

The UK economy will grow at a slower pace than expected with trade set to drag on recovery, according to the British Chambers of Commerce’s (BCC) latest economic forecast.

The BCC has downgraded its expectations for UK GDP growth in 2021 from 7.1% to 6.8%, as it expects the UK's economic recovery to stall in the final quarter of 2021.

However, GDP growth of 6.8% would still be the strongest output since official records began in 1949, following the historic contraction of 9.7% in 2020 due to the coronavirus pandemic.

The BCC forecasted UK GDP growth to slow to 0.5% in the fourth quarter of 2021, after growth of 1.3% in Q3. This will be down to staff shortages, supply chain disruption and rising inflation along with concern around the Omicron variant, which is expected to weigh on growth by triggering some hesitancy among consumers to socialise and spend.

This will mean the UK economy will return to its pre-pandemic level in the second quarter of 2022, according to the BCC — one quarter later than the BCC’s previously predicted.

Projected GDP growth for 2022 is expected to slow by more than expected to 4.2%, down from the BCC's earlier forecast of 5.2%.

The downgrade reflects the anticipated effects of ongoing supply chain disruption, staff shortages and rising cost pressures.

Trade is forecast to lag significantly behind the wider recovery, as UK exports are expected to fall by 2.8% this year and remain 14.9% — £27.7bn ($36.6bn)— lower than their pre-pandemic level by the end of 2023.

UK exporters continue to face challenges amid the ongoing disruption to international trade due to the pandemic and post-Brexit disruption to trade with the EU.

CPI inflation is expected to rise to 5.2% in the second quarter of 2022 due to the rising cost of imported raw materials and higher energy prices. If realised, this would be the highest rate since September 2011.

However, the BCC forecasts that the current global supply chain disruption will ease in the second half of 2022, sending inflation drifting back towards the Bank of England’s (BoE) 2% target by the middle of 2023.

The BCC expects the BoE to keep UK interest rates on hold at next week’s Monetary Policy Committee meeting with "concerns over the impact of the Omicron variant on the economy likely to delay the anticipated rate hike".

Consumer spending is expected to rise less than expected next year as incomes are squeezed due to high inflation and households begin to run down savings built-up during lockdowns.

Household consumption is now forecast to grow at 4.0% in 2021 and 6.9% in 2022, revised down from 5.5% and 7.6% respectively.

However, consumer spending is still expected to be the main driver of the UK economy in 2022.

Manufacturing is expected to be the worst hit with output growth revised downwards by 2.1 percentage points for 2022, followed by construction — revised down by 0.9 percentage points.

The BCC upgraded its GDP growth forecast for 2023 from 2.1% to 2.3%, sending GDP 3.4% higher than its pre-pandemic level by the end of 2023.

Watch: What is inflation and why is it important?

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