The United Kingdom is entering a ‘household recession’ as consumer confidence weakens, and people are forced to cut back on their spending according to the Confederation of British Industry (CBI).
The CBI is a leading business group that speaks for over 190,000 UK businesses and analysts estimate that the high inflation is causing household disposable incomes to drop by 2.3 percent by the end of 2022 – the largest recorded decline since the 1950s.
“Household recession will come – making business investment even more essential,” the group said, explaining that the situation is the result of a “historic squeeze in household incomes, which will lower consumer spending.”
“This in turn will weaken GDP growth towards the end of this year and into the first half of next year,” the CBI stated.
CBI had previously predicted the UK’s economic growth this year was going to be 5.1 percent but has since been lowered to 3.7 percent and next year the group predicts it will only be around 1 percent from the previously estimated 3 percent.
“High inflation is the primary source of weaker growth. CPI inflation reached a 40-year high in April (9%), driven higher by a cocktail of challenges – ranging from supply-chain pressures, rising commodity prices and war in Ukraine,” it said.
It has also been forecast that inflation will remain high coming into autumn, and it looks to be getting worse when it is expected to climb to a staggering 8.7 percent when Office of Gas and Electricity Markets (OFGEM) raises the energy price cap.
Geopolitics is also playing a role in destabilizing the UK’s economy according to CBI chief economist Rain Newton-Smith.
“This is a tough set of statistics to stomach. War in Ukraine, a global pandemic, continued strains on supply chains – all preceded by Brexit – has proven to be a toxic recipe for UK growth.”
CBI stressed that the only way to deal with the coming calamity, is decisive and immediate action from the government.
The groups suggested that the government should introduce measures that would curb labor shortages and cut taxes on company spending.
“Let me be clear – we’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a recession. And even if we don’t, it will feel like one for too many people. Times are tough for businesses dealing with rising costs, and for people on lower incomes concerned about paying bills and putting food on the table,” CBI head Tony Danker said, adding that London’s inaction in the coming months “would set in stone a stagnant economy in 2023, with recession a very live concern.”
The rising prices will also be felt when winter rolls around again and it will undoubtedly cause a huge amount of stress on families in the UK.