City Expects Rishi to Put Economy on “Semi-Wartime Setting” mdi-fullscreen

Ahead of Rishi’s Spring Forecast Statement due in two weeks, the Centre for Economics and Business Research has issued a chilling scenario analysis which calculates the likely knock on effect from Russian sanctions on global commodity prices and consequently UK inflation. They expect GDP growth this year will be halved – down from a previously forecast 4.2% in 2022 to 1.9%, with growth in 2023 reduced to zero. They calculate the reduction in GDP to cost more than £90 billion per annum…

Higher commodity prices will:

  • Reduces the level of disposable income by 1.9% in 2022 and by 2.1% in 2023. As a result they estimate disposable incomes will fall in 2022 by 4.8%, with a further fall of 1.4% in 2023. The fall in 2022 is the largest since records started in 1955.
  • The forecast fall in living standards this year is an estimated £71 billion – which amounts to £2,553 per household. The part of it due to invasion of Ukraine is about half – £35 billion (£1,259 per household) – with a further reduction from this source in 2023 of £29 billion (£1,043 per household).
  • The combined effects of sanctions and slower world trade growth reduce export growth in 2022 by 2.1% and by 0.5% in 2023. Export growth was previously predicted to be 3.0% this year and 0.4% next so these combined impacts more or less wipe out the predicted export growth.
  • Inflation by Q4 2022 is likely to be 4.1 percentage points higher than CEBR previously forecast. They now expect quarterly CPI inflation to hit 8.7% in Q2 and to remain above 7% until Q1 2023.
  • The CEBR now expects the Bank of England to guide interest rates to 1.25% in 2024 rather than the previous forecast of 2%.

CEBR’s analysis was based on oil and other commodities being at lower prices than they actually are today. Rishi is going to be under pressure to put the economy on a semi-wartime setting in his spring statement…

mdi-tag-outline CEBR Wonks
mdi-account-multiple-outline Rishi Sunak
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