With the aftermath of the still-lingering pandemic paired with Brexit woes upon us, it’s questionable how the UK economic outlook will save face in 2022.
While at the height of the pandemic, it was a concern how the economy would come back to life since the UK experienced its worst hit in mid-2020. Without considering potential covid variants and rule changes in the next year, it is only possible to assume things should improve, with the pandemic soon feeling like a distant memory come the summer months.
A recovering economy
The economy is showing signs of weakness despite the predictions for GDP growth in 2022. In an article named ’Why the recovery remains strong – but is being slowed by headwinds’, the authors predict that rising inflation, constraints on supply and demand and the possibility of increased rates will slow recovery, but may be held back due to uncertainty.
After predicting growth in GDP of 7.6% last summer, the authors now expect growth of 6.9%. In our opinion, we agree with the authors that ‘strong financial reserves’ built up by households during lockdowns will help the economy see a steady increase. Business investments are also expected to help minimise concerns around growth.
As the economy recovers, we expect to see it reach pre-crisis levels as 2022 progresses. Regardless, it is vital to consider any possible downfalls to prepare for potential challenges. An increase in border costs after the UK’s exit from the EU Single Market impacts imports and exports. Inflation will only continue to rise due to higher energy prices and ongoing supply shortages. By the end of 2023, we expect inflation to fall back towards its 2% target. For now, inflation is predicted to peak at 4.9% in the early months.
The dreaded inflation
With little room for growth and what seems like the sky is the limit for inflation levels, shortfalls in demand and supply have caused the Bank of England to consider raising rates. The Financial Times annual survey, which included the opinions of almost 100 economists, revealed that most believe that inflation will soon outrun wages.
Although inflation is becoming the new norm around the globe, the UK will experience supply-chain difficulties and loss of labour more severe than other countries due to Brexit. Whilst it might have appeared to be all doom and gloom, the pandemic provided a new life for investment in technology and our use of digitalisation.
Despite political concerns and the rise in taxes, the UK economy will improve at a slow but steady pace as inflation moderates.
Looking into the future
The 2022 numbers might seem concerning after a strong comeback in 2021, but keep in mind getting back to pre-covid levels across the board is the goal for the UK economy to recover. It will take time, but we will see positive change as investors become more comfortable with business opportunities.
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