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PwC has joined the Bank of England and Office for Budget Responsibility in forecasting that Britain will avoid a recession this year.
PwC estimates that the UK economy will grow by 0.1% this year before returning to 1% growth by the end of 2024 and 1.6% by end of 2025. It believes GDP will rise by 1.6% by the end of 2025.
PwC predicts that CPI inflation is set to return to 2% target by end of 2024 – but prices cumulatively set to be 20% higher compared to the start of 2021. Despite this, however, inflation may remain higher in certain key areas – such as food and services – and this may mean the cost of living pressures will continue to be experienced differently across households.
The analysis found that the UK is underperforming relative to other G7 countries as high levels labour inactivity acts as barrier to recovery with inflation pressures easing
All of UK’s nations and regions have reported growth in the three months to February 2023 but northern regions more heavily impacted by sluggish growth in specific industries
Despite this improved outlook, however, the report notes that the UK’s recovery is lagging behind its G7 peers. In particular the UK’s high levels of labour inactivity for over-50s is a key driver.
All of the UK’s nations and regions have reported growth in the three months to February, led by London (0.9%) and Northern Ireland (0.6%). Growth, however, was slower across the North of England and Midlands, partly due to ongoing post-pandemic issues affecting the manufacturing sector and related supply chains.
Barret Kupelian, senior economist at PwC said. “Our analysis suggests the UK has very much passed through the eye of the inflationary storm compared to last year, and is showing signs of a return to some sort of normality this year. But any recovery is subject to risks which could include future geo-political shocks, persistently higher inflation pressures and a weaker sterling. Cumulatively, we expected prices by the end of next year to be 20% higher than they were at the start of 2021, and this will continue to mean that businesses and households will need to reconfigure their approach to pricing and spending.”
“What is important, as the immediate inflation pressures abate, is to look seriously at the structural issues facing UK productivity. In particular, tackling the UK’s relatively high levels of labour inactivity across over-50s could provide a notable increase in growth in a relatively short period of time.”
Gora Suri, economist at PwC, said “The key drivers of inflation have been energy, food and, to a lesser extent, supply chain disruption. While energy price inflation is starting to ease, food price inflation remains at a multi-decade high and this puts pressure on consumer spending, especially in the services sector.”
“So while the headline CPI rate will fall, prices will cumulatively be one fifth higher by the end of next year compared to the start of 2021. This will inevitably affect those on lower incomes, or who have seen smaller wage growth, significantly more than others and will have divergent impacts on consumer spending patterns in a highly polarised recovery.”