UK economy predicted to avoid recession

The National Institute of Economic and Social Research (Niesr) has predicted that the UK is likely to avoid a recession this year.

Niesr says that the UK will likely avoid a protracted recession in 2023, but GDP growth is set to remain close to zero. However, with the cost-of-living crisis having a lasting effect on households, for at least 7 million it will certainly feel like a recession.

Inflation will continue to remain a concern for the 2023 outlook at both the macroeconomic and household level. Despite falls in the headline figure measures of ‘core’ or underlying inflation suggest that inflationary pressures are still present in the UK economy. It is anticipated that inflation will still be above 3 per cent at the end of 2024 and will not reach the Bank of England’s two per cent target until the third quarter of 2025.

The anaemic growth, and persistent inflation, continues to damage UK households. ONS data for 2022 Q3 show that real disposable income contracted for the fourth consecutive quarter, despite government assistance. We project that 7 million UK households (1 in 4) will be unable to meet in full their planned energy and food bills from their post-tax income in 2023-24, up from around 1 in 5 in 2022-23. Middle-income households, will face a hit to their personal disposable income ranging from 7 per cent to 13 per cent, reaching up to £4,000 in the financial year 2022-23.

Higher interest rates mean higher costs on lending for businesses, increasing the risk of lower business investment. This may affect the longer-term growth and productivity prospects for the UK.