The shockwaves from the Russian invasion of Ukraine will cut UK living standards by £2,500 per person, lead to more persistent inflationary pressure and slow the economy to a standstill next year, economists fear.
Following reports of an escalation of the west’s economic measures against the Kremlin, forecasters have cut their estimates of growth in 2022 and 2023 and become gloomier about the outlook for the cost of living.
The Centre for Economics and Business Research consultancy said the prospect of living standards taking their biggest hit since records began in 1955 would put pressure on the chancellor, Rishi Sunak, to announce fresh help in his spring statement on 23 March.
Based on the assumption that sanctions would have a marked impact on global commodity prices and inflation, the CEBR said growth this year would be halved – down from a previously forecast 4.2% in 2022 to 1.9%. Its growth estimate for 2023 has been reduced from 2.0% to 0.0%, while after peaking at 8.7% in the spring, inflation is expected to remain above 7% until early 2023.
“As a result of higher commodity prices, we estimate that disposable incomes will fall in 2022 by 4.8% with a further fall of 1.4% in 2023. The forecast fall in living standards this year is an estimated £71bn – which amounts to £2,553 per household. As a result, we estimate that 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 chancellor is not currently planning on making his spring statement a mini-budget but the CEBR said he was “likely to be under further pressure to put the economy on a semi wartime setting on 23 March”.
James Smith, developed market economist at ING bank, said: “The war in Ukraine and the associated spike in energy costs means a growing risk that the UK will enter a consumer spending downturn. It’s early days, but we have revised downwards our forecasts, and quarterly growth rates are likely to hit zero later this year. [We] will likely see inflation peak close to 8% in April and end the year near to 6%.”