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Economy will grow slower

According to the EY Item Club's latest forecast, rising inflation and supply chain disruption mean that the economy will grow at a slower pace than expected this year and next. However, the group expects the Bank of England's monetary policy committee to increase the interest rate to 0.25 per cent at its meeting in February rather than next month. However, the report suggests the economy has bounced back from its 9.7 per cent contraction in 2020.

The report also cut its forecast for consumer spending, which had been expected to rise by 4.8 per cent this year and by 7.4 per cent next year, to 3.9 per cent and 6.8 per cent, respectively. It said that it expected inflation to peak at nearly 5 per cent early next year, higher than the 3.5 per cent it had forecast in July, and to remain above 3 per cent until the second half of the year. The economy will grow by 6.9 per cent this year, and by 5.6 per cent next year, it said in its autumn forecast. This is down from its July prediction of growth of 7.6 per cent and 6.5 per cent, respectively, although it would still mean that change this year was the strongest since 1941. Record growth is still forecast, but there are headwinds as we approach the end of the year:

  • Pandemic-related policy support is being withdrawn.

  • Supply chain disruption and shortages have been more severe than expected.

  • The scope for catch-up growth has been run down."

It added that growth would slow to 2.3 per cent in 2023 before stabilising at 1.8 per cent over the following two years. 

Summarised www.sba.tax


 

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