Written by Leigh Foster

The UK’s economy has started 2022 on the back foot due to the huge surge in Omicron cases across England, Wales, Scotland and Northern Ireland, and due to the various restrictions in specific countries, there has been a decline in spending and the general public going out to places like restaurants, pubs, theatres and cinemas.

We are also seeing a steep increase in energy bills which is pushing up inflation, as well as the known shortages of workers and materials across most industries.  Below I have looked at some of the UK’s economic prospects for 2022:

Gross Domestic Product (GDP)

Economic activity has dropped since the emergence of the coronavirus Omicron variant, with people choosing to be wary due to high infection rates and government restrictions impacting sustained growth. Economists warn a continued hit would lead to GDP to fall in the first few months of 2022. The economy is within touching distance of its pre-pandemic peak, at just 0.5% below its February 2020 level in October 2021, even though official figures show the UK is behind every country in the G7 apart from Japan. 

The Organisation for Economic Co-Operation and Development (OECD) forecasts made before the emergence of Omicron suggested UK growth would slow from 6.9% in 2021 to 4.7% in 2022.  Previous waves of the pandemic have shown a smaller hit to GDP compared with the first phase of the pandemic when the economy collapsed by 20% in a single quarter in spring 2020 from £570bn down to £440bn.

 

Unemployment

Unemployment in Britain continued to fall in late 2021 despite the end of the furlough scheme on 30th September, among record numbers of job vacancies and severe shortages of staff in several sectors of the economy. Omicron threatens to push up unemployment in the hardest-hit industries, such as hospitality and travel. However, many experts still forecast the unemployment rate will drop in early 2022 to just under 4%, which is similar to pre-pandemic levels, and representing about 1.4 million unemployed.

With ongoing disruption in the job market, the number of adults in economic inactivity (those not working, and not looking for a job) has risen by almost 400,000 since the start of the Covid outbreak to about 8.7 million.

The government will continue to point to the rise in the number of staff on company payrolls to 29.4 million, which is approximately half a million above pre-pandemic levels, official figures show employment, including self-employment, remains almost 600,000 below pre-Covid levels, at about 32.5 million.

 

Inflation

British households and companies are being hit by the highest rate of inflation for just over 10 years, as the effect from Covid-19 pushes up the cost of raw materials and causes disruption and setbacks to global supply chains.  With known struggles in supply and demand, and energy prices hitting record highs, the consumer prices index measure of inflation rose to 5.1% in November 2021, the highest rate in a decade. The Bank of England has warned inflation could tip at about 6% in April 2022 which is three times the target rate of 2% - The rate in July 2021.

It’s going to be an interesting year to see the impact on the recruitment market, GDP and inflation.