Plymouth faces an economic crisis as inflation rises and other cities poach workers

Plymouth is facing an economic nightmare with rising inflation fueling the cost of living crisis, falling investment by businesses and workers being poached by employers elsewhere in the country. A new report from the British Chambers of Commerce (BCC) predicts that economic growth will stall and inflation will hit a 33-year record high of 10 per cent before the end of the year – well above average earnings growth – and not fall significantly by the end 2024

These rising costs are also likely to severely weaken business investment in the UK, the BCC forecast says. And the situation is likely to worsen with tax and interest rate hikes and global shocks like the Russian invasion of Ukraine.

Plymouth won’t be immune to the pain as Stuart Elford, chief executive of the Devon & Plymouth Chamber and chairman of the BCC South West, said: “The latest economic outlook is extremely worrying but comes as no surprise. The economy is struggling with the impact of Brexit, Covid and now the war in Ukraine.

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“Exponential increases in the cost of raw materials, fuel and energy have added pressure at a time when cash reserves are being depleted and a tight labor market is dampening productivity. Additional costs for households have put wages under pressure and this has led to an inflationary spiral.”

He said there was the additional problem of Plymouth firms not being able to retain talented employees. He explained: “In the South West we see companies struggling to match the wages that are being offered by companies outside the region that allow people to work from home or cause them to move out of the region – what puts further pressure on the labor market here.”

He added: “We have called on the government through BCC to provide an emergency budget to ease the pressure on businesses and expand the scope of the annual investment allowance to include skills training, which would help close the productivity gap that is in ours Particularly widespread in the region due to its specific challenges. Without these measures, unfortunately, some companies will fail. Companies that are members of the Devon & Plymouth Chamber are three times more likely to survive than those that are not. So we are reaching out to businesses across Devon to offer our support to get through these difficult times.”

BCC has downgraded its expectations for 2022 GDP growth to 3.5% (from 3.6%) amid what it described as a “worsening economic outlook”. UK inflation is now expected to hit 10% in Q4 2022, with heightened economic uncertainty and rising costs expected to weigh heavily on business investment, with growth forecast for 2022 of 1.8%, a significant slowdown versus 3.5% in the previous forecast.

Expectations for GDP growth in 2022 are now 3.5%, less than half the 7.5% growth seen last year. GDP is expected to remain flat quarter-on-quarter with no growth expected in Q2 and Q3 before contracting 0.2% in Q4.

This negative outlook reflects a combination of rising inflation, weak business investment, tax hikes and the global economic shocks – first caused by Covid and then exacerbated by the war in Ukraine. Annual UK 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 forecast to grow 4% in 2022, down from the 4.4% forecast in the first quarter. This reflects historically high pressures on real household incomes as inflation far exceeds projected median income growth of 5% for the year.

Businesses and consumers are facing unprecedented inflationary pressures resulting from rising commodity costs, increases in the energy price cap and upward pressure on energy and commodity prices. BCC said if CPI inflation hit 10% in the fourth quarter of 2022, it would be the highest since CPI records began in their current form in 1989.

CPI inflation is expected to finally fall back towards the Bank of England’s 2% target by the end of 2024, but at the same time the Bank of England interest rate is expected to rise to 2% in 2022 and 3% in 2023, with significant divergences from the 1% and 1.5% interest rates previously forecast for Q1.

BCC said business investment is expected to grow 1.8% in 2022, a big downgrade from the previous forecast of 3.5%. The downgrade reflects heightened political and economic uncertainty, as well as rising cost pressures, which are limiting investment opportunities for smaller companies. BCC survey data on business investment shows no signs of recovery since the start of the Covid pandemic.

Alex Veitch, Director of Policy at the UK Chamber of Commerce said: “Our latest forecast shows that the headwinds facing the UK economy are unlikely to abate amid persistent inflationary pressures and sluggish growth. The war in Ukraine came just as Britain began a recovery from Covid; put further pressure on the company’s profitability.

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“The projected decline in business investment is particularly worrying. It is vital that urgent action is taken on this and we are having constructive discussions with the government on its review of capital allowances and other measures to encourage business investment.

“With inflation projected to outpace wages, we are concerned about a fall in consumer spending, which would further hurt businesses and hamper growth. We forecast that if trends persist, inflation will not return to the Bank of England‘s target rate until late 2024, implying a prolonged difficult period for the UK.

“Against this backdrop, the government needs to put in place robust and supportive measures to help businesses pull the UK out of this economic slump. Businesses must be trusted to invest, only then can they drive the growth that the economy so desperately needs.”

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