UK faces slow growth, high inflation after pandemic and Brexit – NIESR


Amazon trailer trucks are seen at the port of Cherbourg, France, January 21, 2021. Brexit delays and customs checks have led to increased demand for shipping goods to and from Ireland directly to European ports like Cherbourg in France. REUTERS/Gonzalo Fuentes/File Photo

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  • “Stuttering growth, rising inflation” predicted for the coming months
  • The CPI should peak around 5% in the second quarter of 2022, then slow its fall
  • A trade dispute with the EU would aggravate growth and inflation problems
  • BoE’s political communication “a bit of a disaster” – NIESR

LONDON, Nov 9 (Reuters) – Britain’s economy is at risk of stagnation and lingering inflation over the next few years due to lingering supply chain bottlenecks and headwinds from Brexit, the British government warned on Tuesday. National Institute for Economic and Social Research (NIESR) think tank.

Inflation is expected to reach around 5% next year, while the UK economy is expected to grow only 1.7% in 2023 and 1.3% in 2024 after rebounding from 6.9% in 2021 and 4.7% in 2022 after the COVID-19 pandemic, NIESR mentioned.

“We could face economic stagnation,” NIESR Director Jagjit Chadha said. “We believe that the short-term supply problems faced by the UK will persist and are likely to be exacerbated by Brexit.”

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Reduced immigration to the European Union and lower business investment compared to what would have been the case without Brexit will also limit future growth and productivity, according to forecasts.

“We are getting the economic management of the UK economy wrong,” Chadha said, pointing to years of underinvestment in training, housing and infrastructure, particularly outside London.

Prime Minister Boris Johnson, who took office in 2019, said he wanted to make “leveling up” poorer areas a priority.

In the short term, wealthier households are unlikely to become more willing to spend the savings they have accumulated during the pandemic, the NIESR said.

“The next few months are likely to bring stuttering growth, rising inflation and widening income inequality to the UK economy,” he said.

Another danger is a trade dispute with the EU, which could erupt within weeks over a disagreement over customs arrangements for the British province of Northern Ireland.

Such a dispute would intensify supply chain problems and weaken the pound, pushing up inflation and increasing the chances of it taking root, the NIESR said.

Its forecast paints a broadly similar growth picture to last week’s from the Bank of England, but the NIESR expects inflation to be slower to come down.

“The Bank of England (hopes) – unreasonably in our view – that inflation will go away on its own fairly quickly,” said NIESR Deputy Director Paul Mortimer-Lee.

Companies’ drive to rebuild profit margins, along with rising energy prices and supply chain pressures, would push inflation to around 5% in the second quarter of next year.

The NIESR said it expects the BoE to raise its main interest rate to 0.5% in the second quarter of 2022.

The central bank took investors off guard and left rates unchanged last week after its governor’s remarks were interpreted by markets as signaling higher borrowing costs this month.

“I think it was a bit of a disaster, to be honest… leading people in the wrong direction. There’s a lower cost in sterling terms (and a) higher risk premium on UK assets. ” said Mortimer-Lee.

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Reporting by David Milliken Editing by William Schomberg

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