UK growth forecast cut as inflation hampers economy
The International Monetary Fund (IMF) has cut its growth forecast for Britain in 2022 by one percentage point to 3.7%, warning that soaring inflation will hit spending and investment.
“Consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment,” the organisation said in its latest quarterly global economic report.
The IMF cut its forecast for global growth from 4.4% to 3.6%, saying conditions have “worsened significantly” since its last update in January.
The IMF said the economic effects of the war in Ukraine were “like seismic waves that emanate from the epicentre of an earthquake”.
The World Bank joined the IMF is slashing its global growth forecast as rising interest rates, runaway inflation, continued Covid-19 infections and war in Ukraine hamper the world’s economy. The World Bank downgraded its forecast from 4.1% to 3.2%.
Chief economist Carmen Reinhart said the world was passing through a period of “exceptional uncertainty”, adding that further downgrades could be made.
Accountancy and consultancy firm BDO said half of the 500 businesses it spoke to in a recent survey said rising costs were their biggest problem.
BDO Partner Ed Dwan said: “This is a deeply concerning time for the UK businesses, with inflation and global uncertainty all threatening to stifle the post-pandemic recovery.
“The large number of businesses taking on new or increased debt piles in a period of mounting inflation is testament to the challenges they face, and the hike in National Insurance could prove a tipping point for many in the midst of the cost-of-living crisis.”
He added: “These businesses are the engine of the economy and their concerns should not be overlooked. As part of its levelling-up agenda, the Government should consider introducing more targeted policies that encourage investment and drive growth for the UK’s medium-sized businesses.”