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UK real gross domestic product (GDP) grew by 1 per cent quarter on quarter (QoQ) in the fourth quarter (Q4) of 2021 compared with an identical rise in the previous quarter. Despite the end of most COVID-19 restrictions from late January 2022, IHS Markit expects real GDP growth to slow in the first half of this year due to escalating cost of living and rise in consumer price index (CPI).
In annual terms, the economy rose by 6.5 per cent year on year during Q4 2021, which implied that the economy grew by 7.5 per cent in 2021, the largest gain since the World War-II. However, this was after a 9.4 per cent contraction in 2020, with the United Kingdom enduring a larger-than-average hit from COVID-19 and public health restrictions.
The UK outlook for 2022 is uniformly less upbeat, flagged by sliding growth projections, London-based IHS Markit’s economics director for Europe Raj Badiani said in a note.
UK real GDP grew by 1 per cent quarter on quarter in the fourth quarter (Q4) of 2021 compared with an identical rise in the previous quarter. Despite the end of most COVID-19 restrictions from late January 2022, HIS Markit expects real GDP growth to slow in the first half of this year due to escalating cost of living and rise in consumer price index (CPI).
CPI in the 12 months to January increased to 5.5 per cent in January, the highest rate since the series began in January 1997, and since March 1992 (7.1 per cent) when using the historical-modelled data.
More inflation pain lies ahead. Elevated energy futures prices forced the UK energy regulator Ofgem, which sets the tariff caps twice a year in April and October, to announce significant hikes. The tariff cap in April this year will increase by 54 per cent, the largest increase since the government introduced the cap in 2019. This will imply notably higher household utility prices for 22 million households from April 1.
The eye-watering rise in utility prices will ratchet up the anticipated peak in the 12-month rate in the CPI to over 7 per cent in April 2022, he wrote.
Worryingly, Ofgem is expected to announce a further sharp increase in October, pointing to a higher-than-previously-anticipated inflation rate at the end of 2022. Meanwhile, households face more challenging fiscal and monetary policy conditions.
Overall, IHS Markit expects an intensifying squeeze on household confidence and real incomes. Early indicators are not encouraging, with real wages in retreat from late-2021. Furthermore, it now expects household disposable income adjusted for inflation to shrink in 2022, which would be the third time that it has fallen since 1990.
Intensifying pressure on household budgets will weigh down on consumer spending developments and act as a handbrake on the pace of GDP growth in the next few quarters.
Fibre2Fashion News Desk (DS)
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