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Inflation will hit UK 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%, down from 5.6%, as the squeeze on households’ spending power and the omicron variant slow the recovery.
In its latest quarterly assessment of the economy, EY predicts inflation to hit 7% in the spring, its highest level since 1992. That will mean people will see their real wages fall this year (in the biggest squeeze on households on record).
EY predicts the Bank of England will respond by hiking Bank Rate to 1% by the end of this year — having lifted them to 0.5% last Thursday.
On the upside, EY says the UK GDP grew 7.3% in 2021, up from the 6.8% predicted in its previous forecast.
Hywel Ball, EY’s UK chair,…