Monthly economic brief: July 2022

Economic outlook

Latest output growth forecasts continue to be revised down as the inflationary outlook continues to sharpen.

• At a global and domestic level, the economic outlook has weakened significantly since the start of the year as rising inflationary pressures, exacerbated by the war in Ukraine, are expected to weigh on the GDP growth outlook over this year and next.
• At a global level, in July, the IMF forecast the global economy to grow 3.2% in 2022 (down from 3.6% forecast in April) and 2.9% in 2023 (down from 3.6%) commenting that the downward revisions reflects stalling growth in the world’s three largest economies – the US, China and the euro area. The IMF also uprated their inflation forecasts with the risks to the forecasts weighted to the downside. [22]
• At a UK level, the average of new independent forecasts in July (published monthly by HMT) highlights the combination of the upgrades to inflation forecasts and downgrades to growth forecasts. UK GDP is forecast to grow 3.6% in 2022 (unchanged over the month) and 0.6% in 2023 (down 0.3 p.p over the month).[23]

• In contrast, the average independent projected CPI inflation rates have been revised up to 9.6% in Q4 2022 (up 0.4 p.p over the month) and 4.7% in Q4 2023 (up 1.6 p.p). This points to current expectations that as inflation will potentially peak at the end of this year and start to ease back over 2023, the GDP growth outlook for 2023 and 2024 is notably weaker than for 2022. For example, the Bank of England project inflation to rise above 11% in October 2022 and for UK GDP growth to ease from 3.75% in 2022 to around -0.25% growth in 2023 and 0.25% growth in 2024.
• Forecasts for Scotland’s economy have followed a similar pattern. The most recent Scottish Fiscal Commission (SFC) forecasts in May forecast Scotland’s economy to grow 4% in 2022, slowing to 1% in 2023. The SFC forecast CPI inflation to peak at 8.7% in Q4 2022 and forecast real average earnings to decrease by 2.7% in 2022-2023.[24]
• Most recently in June, the Fraser of Allander Institute forecast Scottish GDP growth in 2022 of 3.8%, however in the face of higher and more persistent inflation, have revised down the growth outlook for 2023 to 0.5% (previously 1.5%) and for 2024 to 1% (previously 1.4%).[25]