Economic Commentary [March 2022]

Two years on from the first lockdown, it would be great to be optimistic about the economic prospects for 2022. Unfortunately, global uncertainties and the cost of living crisis, which are not unrelated to each other, have doused that enthusiasm with a bucket of cold water. The war in Ukraine is first and foremost a humanitarian disaster. This crisis though also has implications for the costs of goods and services in our country. Having said this, it is important to remember that inflationary pressures were evident well before this, with post-pandemic supply chain issues and world-wide demand for gas causing prices to rise. Despite the impact of Omicron in December, the economy is now (as of data in January) back above pre-pandemic levels of growth. This milestone in the recovery is of course important: but seems less heartening than it might have done a few months ago given the wider economic conditions. Needless to say, the macro picture for the economy hides a disparate sectoral story. The hospitality, arts, leisure and culture and “other services” sectors remain significantly below pre-pandemic levels of output. Other services covers businesses like hairdressers and beauticians which have been heavily impacted by restrictions. These sectors may suffer further as consumers cut back discretionary spending as the cost of living crisis really starts to bite. The resilience of these businesses is likely to be tested yet again. With all this in mind, we have downgraded our forecast for 2022. We are now forecasting growth of 3.5% in 2022, 1.5% in 2023, and 1.4% in 2024. Our forecast for 2022 has been downgraded from 4.7% in our previous commentary. Of course – forecasting right now is hugely uncertain, and our view on the outlook for the economy is likely to evolve as the geopolitical and economic situation evolves over the next few months. The Spring Statement last week was unveiled as a package to support households and businesses through the cost of living crisis. However, it is likely that the measures will be little help to those on the lowest incomes, particularly benefit recipients, when the real-terms value of the money they are receiving is being eroded by inflation. As well as analysis of all of the latest data on the economy, in this edition of the commentary we analyse the new forecasts and announcements released last week. We also have a special focus on the impact on businesses of price rises, and a deep dive analysis into the rise in inactivity in the labour market. Finally, we produce an analysis of all things local government, to set the scene for the local government elections in May. While it is easy to be distracted by the global and economic issues affecting us all at both a macro and personal level, we set out the key issues which are likely to inform this debate in the run up to 5th May