15th March 2022
Chancellor Rishi Sunak unveiled the independent forecaster’s revised projections during his Spring Statement, delivered to the House of Commons on 23 March. The new forecast suggests
the economy will expand by 3.8% in 2022, significantly down on October’s 6.0% prediction. Next year is also expected to yield lower growth, with the economy forecast to expand by 1.8%
compared to a previous prediction of 2.1%.
The downgrades partly relate to Russia’s invasion of Ukraine, which the OBR warned would have ‘major repercussions for the global economy.’ In addition, they reflect a sharp squeeze on living
standards with real disposable household incomes expected to fall by 2.2% in the coming financial year – this would represent the biggest annual decline in UK living standards since records
began in 1956.
Ironically, the latest gross domestic product statistics released by ONS showed the UK economy grew by a faster than expected 0.8% in January. This was the strongest monthly expansion since
last June and beat all forecasts in a Reuters poll of economists.
Survey data also suggests the economy continued to expand at a robust pace during the last two months. The preliminary reading of the S&P Global/CIPS Composite Purchasing Managers’ Index
(PMI), for instance, came in at 59.7 in March, only marginally below February’s historically high figure of 59.9.
S&P Global Chief Business Economist Chris Williamson said, “The further reopening of the economy after COVID-19 containment measures helped offset headwinds from the Ukraine war, Brexit
and rising prices.” However, he also noted that the PMI’s measure of business optimism slumped to a 17-month low in March, adding, “Indicators point to potentially sharply slower growth in
the coming months.”