LONDON – British businesses’ optimism is beginning to falter as the potential impact of Russia’s invasion of Ukraine on inflation and consumer spending becomes clearer, the Confederation of British Industry said on Monday.
“Listening to them in the last two weeks, I think you are starting to see business confidence starting to waver now,” CBI Director-General Tony Danker told the British parliament’s Treasury Committee.
Unlike some European countries, Britain trades relatively little with Russia. But higher costs for energy and other inputs were eroding confidence that had been created by the fading of headwinds from the COVID-19 pandemic, Danker said.
Amrita Sen, director of research at economics consultancy Energy Aspects, said she viewed the risk of recession as “very, very high” and said Germany could face diesel rationing by the end of the month, with knock-on impacts for Britain.
Jagjit Chadha, director of Britain’s National Institute of Economic and Social Research (NIESR), also warned that growth risked grinding to a halt.
“At current energy and oil prices, the UK is skirting very close to a fall in activity. We’re going to be hovering around zero next year,” he told the parliament hearing into the economic impact of the Russia-Ukraine conflict.
British regulated household energy tariffs are already due to rise by more than half next month due to rises in energy costs that pre-date Russia’s Feb. 24 invasion.
On Feb. 4 the Bank of England forecast that 2022 would see one of the biggest squeezes on living standards in 30 years, and estimated annual economic growth would slow to about 1.6% by the end of the year.
Inflation is likely to peak above 7% in April, and the central bank is widely expected to raise interest rates back to their pre-pandemic level of 0.75% on Thursday in a bid to stop inflation overshooting its target for too long.