UK Economic Outlook Winter 2021

UK Economic Outlook Winter 2021

Rory MacQueen

15 years: Macroeconomist

In this video, Rory Macqueen, principal economist at the National Institute of Economic and Social Research, is here to tell you about our recently published Winter 2022 Outlook for the UK economy.

In this video, Rory Macqueen, principal economist at the National Institute of Economic and Social Research, is here to tell you about our recently published Winter 2022 Outlook for the UK economy.

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UK Economic Outlook Winter 2021

8 mins 5 secs

Overview

Economic activity will grow by 4.8% in 2022, after growing 7.3% in 2021. Those are historically very large numbers – the highest since the Second World War (1941) But they come after an almost unprecedented fall of 9.4% in 2020. For the first time in two years, our forecast is really starting to look at the post-Covid economy.

Key learning objectives:

  • Understand how high the inflation is expected to go

  • Understand the rising cost of living in the UK

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Summary

Riding Inflation

Inflation has risen from 0.6% in December 2020 to 5.5% in January 2022. It is expected to peak at around 7% in the second quarter of 2022, falling back slowly to 4.7% by the end of the year. The largest drivers of inflation in recent months have been supply-chain disruptions, in particular to the supply of gas. The Bank of England has suggested that they are on the look-out for a so-called wage-price spiral. We don't see evidence of this yet but will obviously be monitoring over the coming months.

Living Standards

Household incomes are forecast to grow by around 1.1% in real terms in 2022, less than our forecast for annual average price inflation of 5.9% for 2022. Unemployment is forecast to remain low by historical standards at around 4%, which does help to support household incomes. But record vacancies do not seem to be translating into rapidly accelerating wage growth, though some sectors are seeing bigger rises.

Policy 

The government is planning a fairly swift tightening of fiscal policy, with the withdrawal of Covid-related measures and a rise in national insurance contributions. We think that this planned fiscal tightening is too quick, and is one reason for the slow response of the Bank of England on interest rates. It is a mistake for the government to be dragging on household incomes and consumption at the same time as the Bank is tightening.

 

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Rory MacQueen

Rory MacQueen

Rory MacQueen is Principal Economist in the Macroeconomic Modelling and Forecasting team at the National Institute of Economic and Social Research (NIESR). He works on our quarterly forecast of the UK economy, and the monthly GDP tracker. Before NIESR I worked as a political advisor, and before that taught economics and began a PhD at the University of London.

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