Plymouth faces economic crisis as inflation rises and other towns poach workers
Plymouth faces an economic nightmare with rising inflation making the cost of living crisis worse, falling business investment and workers being poached by employers from other parts of the country. A new report from the British Chambers of Commerce (BCC) predicts that economic growth will come to a halt and inflation will hit a 33-year high of 10% before the end of the year – comfortably outpacing average earnings growth – and will not drop significantly until the end of 2024.
These rising costs are also expected to significantly weaken business investment in the UK, according to BCC forecasts. And the situation is likely to be made worse by rising taxes and interest rates and global shocks such as Russia’s invasion of Ukraine.
Plymouth will not be immune to pain with Stuart Elford, managing director of Devon & Plymouth Chamber and chairman of BCC South West, saying: “The latest economic forecasts are extremely worrying but come as no surprise. Businesses are grappling with the effects of Brexit, Covid and now the war in Ukraine.
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“The exponential rise in the cost of raw materials, fuel and energy has created additional pressures at a time when cash reserves have been depleted and a tight labor market is stifling productivity. The additional costs for households put pressure on wages and this generated runaway inflation.
He said there is the added problem of Plymouth businesses unable to retain talented staff. He explained: “In the South West, we are seeing companies struggling to match the wages offered by out-of-region companies that allow people to work from home or force them to move from the region – adding further pressure on the labor market here.
He added, “We have called on the government, through the BCC, to organize an emergency budget to ease the pressure on businesses and expand the scope of the annual investment allowance to cover training. professionalism, which would contribute to bridging the productivity gap which is particularly wide in our region because of its specific challenges. Without these measures, some businesses will unfortunately fail. Devon & Plymouth Chamber member businesses are three times more likely to survive than those that are not, so we reach out to Devon businesses to offer our support through these difficult times.
The BCC lowered its GDP growth expectation for 2022 to 3.5% (from 3.6%) in the face of what it called a “deteriorating economic outlook”. He now expects the UK inflation rate to hit 10% in the fourth quarter of 2022, with heightened economic uncertainty and rising costs expected to significantly weaken business investment, with growth of 1 .8% forecast in 2022, down sharply from the 3.5% of the previous forecast.
Expectations for GDP growth in 2022, at 3.5%, are now less than half of the 7.5% growth recorded last year. Quarter-over-quarter, GDP is expected to stagnate with no expected growth in the second and third quarters before contracting 0.2% in the fourth quarter.
This negative outlook reflects a combination of runaway inflation, weak business investment, tax hikes and global economic shocks – initially caused by Covid, then compounded by the war in Ukraine. UK annual economic growth is expected to slow sharply to 0.6% in 2023 before recovering slightly to 1.2% in 2024.
Meanwhile, consumer spending is now expected to rise 4% in 2022, down from the first quarter forecast of 4.4%. This reflects the historically high pressure on real household incomes, with inflation far exceeding the expected 5% growth in average incomes for the year.
Businesses and consumers are facing unprecedented inflationary pressures from rising raw material costs, rising energy price caps, and upward pressures on energy and commodity prices. raw materials. BCC said if CPI inflation hits 10% in the fourth quarter of 2022, it would be the highest since CPI records began in their current form in 1989.
CPI inflation should eventually fall back to the Bank of England’s 2% target by the end of 2024, but at the same time the Bank of England’s interest rate should rise to 2% in 2022 and 3% in 2023. These represent significant changes from the 1% and 1.5% rates previously forecast in the first quarter.
The BCC said business investment is expected to grow by 1.8% in 2022, a significant downward revision from the previous forecast of 3.5%. The downgrade reflects heightened political and economic uncertainty and growing cost pressures that limit the ability of small businesses to invest. BCC survey data on business investment has shown no signs of recovery since the start of the Covid pandemic.
Alex Veitch, UK Chambers of Commerce policy director, said: “Our latest forecast indicates that the headwinds facing the UK economy show little sign of abating with continued inflationary pressures and sluggish growth. The war in Ukraine came just as the UK was entering a Covid recovery; additional pressure on corporate profitability.
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“The projected decline in business investment is particularly concerning. Urgent action is essential here, and we are having constructive conversations with the government about its review of capital cost allowances and other policies to incentivize business investment.
“With inflation expected to outpace wages, we are concerned that a decline in consumer spending would further impact businesses and hamper growth. We expect that if trends continue, inflation will only return to the rate Bank of England target until the end of 2024, implying a prolonged period of hardship for the UK.
“Against this backdrop, the government needs to put in place stable and supportive policies that help businesses pull the UK out of this economic quagmire. Companies must have confidence to invest, only then can they drive the growth the economy desperately needs.
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