Economists expect UK living standards to deteriorate in 2022 as inflation and rising taxes hit poorer households, while supply-chain blockages and Brexit-related trade underperformance will limit economic growth.
The Financial Times’s annual survey of almost 100 economists revealed that most expect inflation to outpace wages, while Covid-19 will continue to disrupt production and consumption. At the same time, high energy costs and the increase in National Insurance contributions will hit those on lower incomes hardest.
A majority of respondents also said that the UK’s recovery would lag behind that of comparable economies, with many of them blaming this underperformance on political instability and a lack of any credible long-term economic strategy.
Although many countries are experiencing high inflation, supply-chain disruptions and labour shortages, Brexit would make these problems more severe in the UK, economists said, potentially prompting the Bank of England to raise interest rates more rapidly than other central banks.
Some did see grounds for optimism, noting in particular that the pandemic had sparked a new wave of investment in technology and digitalisation, which could strengthen next year, because of generous tax support. However, several respondents said the benefits could flow into corporate profits rather than into higher wages.
Vicky Pryce, chief economic adviser and board member, CEBR (Centre for Economics and Business Research): It is not surprising that the UK economic growth outpaced those of other G7 nations in 2021 given the sharper fall in GDP in 2020 compared to most others. But GDP looks like it was still further below pre-pandemic levels by the end of 2021 than those of other nations, including the eurozone, For 2022 it is unlikely that this better relative performance will be repeated as the fresh Covid-19 outbreaks, planned increases in stealth taxes via the freezing of income tax thresholds and the rise National Insurance contributions will have exacerbated the negative impact on the growth of a continuing poor trade performance post Brexit. The worsening inflationary pressures will also reduce real personal disposable incomes further and slow spending and growth.
Nina Skero, Chief Executive, CEBR: We expect the UK economy to expand 4.7 per cent in 2022, slightly above the rate of growth anticipated for the United States and large European economies (4.0 per cent-4.5 per cent). While the Omicron variant poses a downside risk for economies across the world, the UK government has signalled that it will continue to provide fiscal support (eg the hospitality and leisure sector funding announced in the days before Christmas) to help ease the impact of any restrictions or even the impact of voluntary consumer caution. Should further lockdowns be enforced, this would lead us to downgrade our forecasts, although with businesses and consumers now well-versed in ‘lockdown living’ we would expect any contraction in economic output to be far milder than that of spring 2020.