UK house prices hit record high but falling cost of living will slow growth ‘significantly’ – business live | shop

Good morning and welcome to our ongoing coverage of the world economy, financial markets, the eurozone and the economy.

Inflation will hit Britain’s economic growth this year as consumers are hit by rising prices, economists warn today.

The EY Item Club has cut its forecast for UK economic growth this year to 4.9% from 5.6% as pressure on household spending power and the Omicron variant slow the recovery.

In its latest quarterly assessment of the economy, EY is forecasting inflation to hit 7% in the spring, the highest level since 1992. That means people’s real wages will fall this year (in the biggest strain on households on record).

EY predicts the Bank of England will respond by raising interest rates to 1% by the end of this year – after raising it to 0.5% last Thursday.

On the plus side, EY says UK GDP grew by 7.3% in 2021 versus the 6.8% predicted in its previous forecast.

Hywel BallUK Chair of EY says:

“The forecast shows that the economic recovery in 2021 has been stronger than expected and the economic impact of Omicron is likely to be temporary and limited. While the economy and UK businesses may have a softer launch pad for growth this year, they will still benefit from a number of tailwinds in 2022 and 2023.

“But blowing in the opposite direction will weigh on household purchasing power, which is expected to be a bigger headwind for the economy than the Omicron variant. Inflation is expected to hit a thirty-year high in the spring, well ahead of wage growth.

“Although the latest projections say that the economic damage from the pandemic is likely to be minimal, policymakers still face challenges in supporting households through the impending financial crisis and giving businesses the confidence they need to unlock business investment. The push towards Net Zero certainly creates an opportunity for investment growth.”

financial services company Deloitte has warned that the economic picture is also looking darker. Consumer confidence is reported to have fallen in the final quarter of 2021 as people were hit by higher household bills and inflation.

Pressure on the cost of living in the UK is set to intensify as the chairman of Britain’s largest supermarket chain warns that food price inflation will soon hit 5%.

John Alanwho presides tesco told the BBC’s Sunday morning program since 2015 that he was aware that people on very tight budgets had to choose between food and heating.

“In a way, the worst is yet to come – because although food price inflation in Tesco was just 1% last quarter, we are impacted by rising energy prices.

Our suppliers are affected by rising energy prices. We’re doing everything we can to make up for it…but that’s the kind of number we’re talking about. Of course 5%.”

European equity markets will start the new week with small gains, with the FTSE 100 index up 0.3% in premarket trading.

The agenda

• 7am GMT: German Industrial Production for December
• 7am GMT: Halifax House Price Index for January
• 15:15 GMT: Finance Committee hearing: Will inflation resume?
• 15.45 GMT: ECB President Christine Lagarde testifies before the European Parliament’s Committee on Economic and Monetary Affairs