‘Extreme Inflationary Pressures’ to Become Even Worse in UK: British Chambers of Commerce

Customer at the fruit and vegetable section at a Sainsbury's supermarket in Walthamstow, East London, on Feb. 13, 2022. Tolga Akmen/AFP via Getty Images

Experts have warned that “extreme inflationary pressures” are likely to worsen in the United Kingdom, and stated that the country is already in the midst of a recession.

Alex Veitch, director of policy at the British Chambers of Commerce (BCC), made the comments in a press release on Sept. 1, where the BCC again downgraded its expectations for growth in the UK’s gross domestic product (GDP) for this year, to 3.3 percent from 3.5 percent in the second quarter against a “deteriorating economic outlook.”

Inflation in the United Kingdom is now expected to reach 14 percent by the end of the year, up from the prior projection of 10 percent, although the BCC estimates it will slow to 5 percent by the end of 2023.

Elsewhere, the BCC said it expects the economy to grow in 2023, albeit by just 0.2 percent, with a slight increase to 1 percent in 2024.

On a short-term basis, the BCC expects a recession for the UK economy with three consecutive quarters of contraction between the second and fourth quarters of 2022.

The standard definition of a recession is also based on two consecutive quarters of declining gross domestic product.

“The extreme inflationary pressures already present are only likely to increase as we head toward Christmas, with the UK economy already thought to be in recession,” Veitch said. “Tackling these pressures must be at the top of the new prime minister’s inbox when they take up their position next week.”

Foreign Secretary Liz Truss is currently the front-runner in the Conservative Party leadership race.

‘Time Is Fast Running Out’

The BCC blamed increased energy costs, a decline in household spending and real wages, and weaker export prospects as some of the reasons for the deteriorating economic outlook. It also cited poor investment conditions and weakening business confidence, adding that most of these issues were “initially caused by the global response to COVID-19 and have been further compounded by the war in Ukraine.”

The business group called for government intervention ahead of the winter in an effort to protect livelihoods.

“Time is fast running out,” said Veitch. “The government must step up to the plate and do what is needed to protect businesses, livelihoods, and jobs. The extreme inflationary pressures already present are only likely to increase” toward the end of the year.

Truss has said that her two priorities, if she wins the race for prime minister, are to secure the UK’s energy supply and to cut taxes.

A report by the Resolution Foundation think tank, published on Sept. 1, forecasted that inflation topping 13 percent could leave average real pay in the second quarter of 2023 at 9 percent lower than two years prior, while typical real household income could drop by 5 percent in 2022–23 and a further 6 percent in 2023–24.

Meanwhile, the number of British citizens living in “absolute poverty” is set to rise, from 11 million in 2021–22 to 14 million in 2023–24, according to the report, which noted that the cost-of-living crisis is set to be the biggest challenge facing the new prime minister.

The BCC’s outlook the British pound slide against the dollar yet again, the exchange rate dropping below $1.16 to £1, its lowest level since March 2020., as economists and investors turn to a “safer” U.S. currency.

Concerns over the bleak outlook for the UK economy had already prompted the pound to fall against the U.S. dollar in August.

Reuters contributed to this report.