Good morning and welcome to our ongoing coverage of the world economy, financial markets, the eurozone and business.
Inflation will hit UK economic growth this year as consumers take a hit from rising prices, economists warn today.
The EY Item Club has cut its forecast for UK economic growth this year to 4.9%, down from 5.6%, as the tightening of household purchasing power and the omicron variant slow the recovery.
In its latest quarterly assessment of the economy, EY predicts inflation will hit 7% in the spring, its highest level since 1992. That will mean people will see their real wages fall this year (in the biggest household contraction on record). ).
EY predicts the Bank of England will respond by raising the bank rate to 1% by the end of this year, after raising it to 0.5% last Thursday.
On the upside, EY says UK GDP grew 7.3% in 2021, versus 6.8% forecast in its previous forecast.
hywel ball, chairman of EY UK, says:
“The forecast shows that the recovery of the economy in 2021 was stronger than expected and the economic impact of Omicron is likely to be temporary and limited. While the UK economy and businesses may have a softer launching pad for growth this year, they will still benefit from a number of tailwinds in 2022 and 2023.
“But blowing in the opposite direction will reduce household purchasing power, which is expected to be a bigger headwind for the economy than the Omicron variant. Inflation will reach its highest level in thirty years in the spring and will be well ahead of wage growth.
“Although the latest forecast says the economic scars from the pandemic are likely to be minimal, policymakers still face the challenge of how to help households weather the next crunch on their finances and give businesses the confidence they need. to unlock business investment. The drive towards Net Zero certainly creates an opportunity for investment growth.”
financial services company Deloitte he has warned that the economic outlook is also looking darker. It reports that consumer confidence during the last quarter of 2021, as people were affected by the increase in household bills and inflation.
The UK’s cost-of-living decline is set to get worse, with the chairman of Britain’s largest supermarket chain warning that food price inflation will soon reach 5%.
john allan, who has presided Tesco since 2015, he told the BBC’s Sunday Morning program that he was well aware that people on very tight budgets had to choose between food and heating.
“In some ways the worst is yet to come, because although food price inflation at Tesco last quarter was only 1%, we are hit by rising energy prices.
Our suppliers are affected by rising energy prices. We’re doing everything we can to make up for it… but that’s the kind of number we’re talking about. 5% of course.”
European stock markets are set to start the new week with small gains, with the FTSE 100 Index up 0.3% in premarket trading.
IGSquawk
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The agenda
- 7am GMT: German industrial production for December
- 7am GMT: Halifax House Price Index for January
- 15:15 GMT: Treasury Committee Hearing: Is Inflation Back to Stay?
- 15:45 GMT: ECB President Christine Lagarde testifies before the European Parliament’s Economic and Monetary Affairs Committee
www.theguardian.com
George is Digismak’s reported cum editor with 13 years of experience in Journalism