UK workers are facing a £2,000 hit to their real wages by the end of 2022 as the UK economy confronts a “highly volatile and uncertain” inflationary outlook, according to the latest PwC Economic Outlook.
PwC expects that the UK will likely report growth of between 3.6% in the “mild winter” scenario and 3.1% in the “harsh winter” scenario by the end of 2022, followed by two years of slow, or even negative, real GDP growth.
Year-on-year changes in economic output will reportedly range between -1.3% to 0.2% in 2023, and between -0.3% to 0.6% in 2024 under the “harsh winter” and “mild winter” scenarios respectively.
The Economic Outlook reports that London is likely to experience above-average output growth of between 3.9% and 4.4% alongside the East of England (3.2%-3.7%), while the South East will record close to par (3%-3.5%).
All other regions are expected to underperform the national average, particularly Yorkshire and The Humber (2.5%-3%), Wales (2.4%-2.9%) and the North East (2.1%-2.6%) due to a higher reliance on “low-productivity sectors” such as retail and wholesale which are more exposed to cost pressures.
Although the UK economy will continue to grow at a rate of between 3.1% and 3.6% in 2022, PwC has now forecast that the UK is likely to enter a recession as early as this year, followed by a period of negligible or negative growth through 2023 and 2024.
The Outlook projects that peak inflation could range from 13% to 22% in 2023, with average annual energy bills ranging from £3,400 and £6,900, depending on the outlook for energy prices and the size and form of anticipated government intervention.
Nick Forrest, UK Economics Consulting leader at PwC, said: “Inflation forecasts have changed rapidly in recent weeks, driven predominantly by the market price of natural gas. Until gas markets regain stability the outlook for inflation will continue to be hard to predict. This will be a challenging environment for businesses to plan, mitigate and adapt.
“Nonetheless, there are profound social and economic challenges ahead for businesses and individuals. We can therefore expect a renewed focus on areas to boost productivity across the UK and deliver substantial economic growth in the long-term.”
