Weaker spending to weigh on UK economy next year

Weaker consumer spending and downbeat trade will cause the UK economy to expand at a slower pace than expected next year, according to a new report released today.

The British economy will grow 4.2 per cent next year, a downward revision from 5.2 per cent, according to projections made by the business group the British Chambers of Commerce (BCC).

Lower consumer spending is the main driver for the less optimistic outlook, caused by roaring inflation and tax hikes earring into households’ real income.

The BCC expects inflation to scale to 5.2 per cent next spring, 0.2 percentage points higher than the Bank of England’s expectations.

Ongoing supply chain snarl ups scuppering trade flows, compounded by worker shortages and prices rising rapidly will also weigh on growth. 

Suren Thiru, head of economics at the BCC, said: “The downgrades to our forecast reflect a moderating outlook for key areas of the UK economy, including consumer spending and trade.”

“Consumer spending is likely to be more restrained than expected over the near term from a combination of negative real wage growth and stretched household finances amid rising inflation,” he added.

Household spending represents an enormous share of output in the UK, meaning any reduction in spending hits the economy hard.