UK recession warning: Horror forecast after Bank of England interest rate update | United Kingdom | News
With the cost of living crisis hitting families hard and the recent interest rate hike by the Bank of England, many households are more inclined to keep their money rather than spend it. However, the EY Item Club warns that leaving the roughly £180bn of pandemic economies untouched across the UK “increases the risk of recession”. The experts’ projection mirrors a similar warning from the Bank of England.
He said the UK would tip into a slow-burning recession due to reduced consumer spending.
Consumer spending is estimated to generate around £2 for every £3 of GDP in the UK.
The EY Item Club predicted in March that the UK would grow by 4.2% this year.
They have now lowered that expectation to just over four percent.
But they add that the UK is likely to slip into recession later this year if “consumer spending fails to meet expectations, or if the October energy price cap revision leads to an increase bills higher than expected”.
The crunch in household spending isn’t just the result of soaring energy prices – it’s the result of inflation on all goods.
The annual inflation rate is currently 6.7%, the highest since 1991.
Relative to the rate of income growth, inflation exceeds it by 2.7 percentage points.
As a result, the UK is experiencing the worst deterioration in living standards since 1977.
And that’s not the worst, as the Bank of England expects inflation to hit just over 10% by October.
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This is partly due to supply chain issues due to China’s lockdown of parts of the country due to Covid, blocking chains.
Project44, an online supply chain tracker, said on April 21 that the waiting time for imported containers in Shanghai jumped 163%, from 4.6 days on March 28 to 12.1. days to April 15.
Russia’s invasion of Ukraine has also generated significant geopolitical uncertainty as alliances are redefined and supply chains realigned.
This further serves to discourage business investment, dragging the economy down.