Consumer spend expectations have been lowered amid soaring inflation rates, reflecting a “significant deterioration” in the UK’s economic outlook.
The British Chambers of Commerce (BCC) has downgraded its expectations for consumer spending from a growth of 6.9% over the year to 4.4%, following the “historic squeeze” on real household incomes from high inflation.
Business investment is forecast to grow 3.5%, down from its previous forecast of 5.1% amid the expected weakening in investment intentions from rising cost pressures, high taxes and falling confidence amid worsening UK and global outlooks, including the impact of Russia’s invasion of Ukraine.
As a result, the BCC downgraded its prediction for economic growth from 4.2% in December to 3.6%, warning the UK economy is forecast to run out of a stream in the coming months.
The BCC attributes this downgrade to a deteriorating outlook for consumer spending and a weaker-than-expected rebound in business investment.
“Our latest forecast signals a significant deterioration in the UK’s economic outlook,” the BCC head of economics Suren Thiru said.
“The UK economy is forecast to run out of steam in the coming months as the suffocating effect of rising inflation, supply chain disruption and higher taxes weaken key drivers of UK output, including consumer spending and business investment.”
“Russia’s invasion of Ukraine is likely to weigh on activity by exacerbating the current inflationary squeeze on consumers and businesses and increasing bottlenecks in global supply chains,” Thiru added.
“Our latest outlook suggests a legacy of Covid, and Brexit is an increasingly unbalanced economy with a growing reliance on household spending to drive growth.
“Such economic imbalances leave the UK more exposed to economic shocks and reduces our productive potential.”