Boris Johnson
(Picture: AFP via Getty Images)The Bank of England has slashed its forecasts for growth this year in a major blow to Boris Johnson’s plans for economic recovery from the pandemic.
GDP is set to rise by just 3.75% this year, a huge downgrade from the 5% previously expected as recently as November, according to the Bank’s Monetary Policy Committee (MPC).
In its minutes to its meeting this week, the MPC said: “Beyond the near term, UK GDP growth is expected to slow to subdued rates” because of the impact of inflation - particularly higher energy prices - on UK consumers’ spending power.
GDP grew by 0.9% in November as the economy powered out of the last lockdown. But it is now feared to have contracted by 0.5% in December followed by another fall in January as the rapid spread of the Omicron variant triggered Plan B restrictions and work from home guidance.
Growth is expected to return in February but will be flat across the first quarter of the year as a whole, according to the MPC’s Monetary Policy Report.
It said: “UK GDP is expected to be flat in 2022 Q1 due to the impact of the Omicron variant. The impact of that is judged to be temporary and GDP recovers quickly, but a squeeze in real incomes caused by the rise in global energy and tradable goods prices weighs on activity through the rest of the year.”
The downgrade threatens the Prime Minister’s claim that the UK has the fastest economic growth in the G7 group of major Western economies.
The MPC’s growth estimate for 2021 and forecast for 2023 have both been upgraded by 0.25%, meaning a net loss of only 0.75% of growth across the three years.
Barret Kupelian, senior economist at consultants PwC UK, said: “The Bank’s forecasts highlight that high inflation will be a more significant headwind into UK growth than initially anticipated, with its forecast for GDP growth downgraded from five per cent to 3.75% for this year.
“This is slower than what the IMF’s January forecasts for the Eurozone for this year. On its own, slower growth is expected to moderate demand-side inflation. On a more positive note, the Bank expects unemployment rates to continue to remain low.”
