UK Chancellor Rishi Sunak
(Picture: HM Treasury)UK growth forecasts were slashed today amid a warning that Britain could be heading for recession.
PricewaterhouseCoopers (PwC) said UK economic growth is now expected to drop to 3.8% this year, revised down from 4.5% projected before the Russian invasion of Ukraine.
The forecast is in line with the Office for Budget Responsibility, which last month cut its prediction for UK growth this year from 6% to 3.8%.
PwC said the average UK household is set to be £900 worse off this year as energy bills, food prices and taxes soar. The lowest earners face a potential £1,300 fall to their incomes as real wages fall by around 2%.
The introduction of economic sanctions on Russia has added one percentage point to PwC’s inflationary outlook. It now sees inflation peaking at 8.4% in the second quarter of 2022.
PwC has also outlined an “economic escalation” scenario, which would include a “substantial disruption to Russian exports of oil and gas. In this doomsday scenario, UK economic growth would be downgraded to 2.8%, and inflation could peak at 11%.
Deutsche Bank this week that said the UK economy would contract by 0.2% in the April to June quarter, before rebounding in the third quarter, but would flatline by the end of the year as household energy bills rise.
“We continue to think that the risk of recession remains on the rise,” said Deutsche Bank’s chief UK economist Sanjay Raja.
“This is something we will be tracking very closely in the coming months. Consumer confidence data is already consistent with recessionary levels.”
Nick Forrest, UK economics consulting leader at PwC, said: “Beyond the tragic humanitarian impacts of the war in Ukraine, there are wider economic consequences, as Russia and Ukraine are key exporters of commodities such as car batteries, food and fertiliser.
“Russia is also a major energy supplier. It is clear that many households and businesses will be feeling great pressure from rising costs this year.”
Forrest added that although UK has not yet faced a growth crisis, it is facing an “inflation crisis”.
Figures compiled by the Treasury show the private sector downgraded forecasts for UK growth this year from 4.4% to 4.1% last month.
