With great speculation on the UK’s economy, recent forecasts predict the economy to avoid recession this year. We examine the outlook for households across the UK.
Despite the Chancellor and Bank of England predicting that the United Kingdom would be in a recession this year, the National Institute of Economic and Social Research (NIESR) has released a forecast which suggests the UK is on course to narrowly avoid tipping into one.
Their forecast has predicted that the economy in the United Kingdom will grow by 0.2% this year and 1% in 2024. The forecast comes as official figures, set to be released on Friday, will confirm that the country also narrowly avoided a recession in the final quarter of 2022.
An economy is defined as being in recession when there are two consecutive quarters of negative growth. While there was a downturn of 0.3% between July and September last year, the economy grew by 0.1% between October and December.
NIESR’s forecast is slightly rosier than recent ones released by the Bank of England and the International Monetary Fund (IMF). Just last week the Bank of England increased its interest rates to 4%, as well as forecasting that the economy will shrink by 1% and unemployment rates will peak at 5.3%.
The IMF on the other hand forecasted that the United Kindom would be the worst-performing developed country in 2023. They are predicting that the UK economy will fall by 0.6% over the course of the next ten months.
NIESR are also anticipating that the headline rate of inflation will halve by the end of the year. Inflation currently stands at a rate of 10.5% but it will ease to 5.3% by December if NIESR’s forecasts are accurate
One in Four households will struggle to pay bills
While the NIESR, a think thank and Britain’s most established independent research institute, are suggesting that the UK will avoid a recession, that is where the good news ends. They are forecasting that many households in the country will fall behind on their bills this year as prices continue to be unaffordable.
The cost of living crisis, which has been amplified by soaring energy costs, will make 2023 feel like a recession for around seven million households. With government support ending in April for every household in the UK, many will be left trying to pay their bills with less disposable income.
As things stand, around one in five homes struggle to keep up with energy bills meaning NIESR are predicting that the situation will worsen before it gets better. This is partly down to middle-income households facing a 7-13% hit on their disposable income this financial year.
With bills rising and disposable income decreasing, NISR are also predicting that fewer people will be able to retire early. They expect many workers between the ages of 50-64 to return to work to help ease the burden.
Hunt to abandon his spending limits?
Upon releasing their forecast, NIESR suggested that Jeremey hunt should use his spring budget to try and boost public sector investment and to announce further energy support for the poorest households in the United Kingdom. They believe he can do this by abandoning the spending limits he imposed last November.
NIESR’s Senior Research Manager, Professor Leaza McSorley, added:
“The UK economy performed better than forecast in 2022, with annual GDP growth of 4.1% and unemployment at 3.7%. While the economy seems unlikely to fall into a protracted contraction, the risks are skewed on the downside with higher Bank rate and some withdrawal of fiscal support likely to bear down on activity over the course of 2023 and 2024.”
Jeremy Hunt will announce his spring budget next month with a forecast from the Office of Budget Responsibility (OBR) coming on the same day. It will be interesting to see whether the NIESR forecast matches up with how the government sees the next 12 months going.
Given the times we live in, any crumb of positive economic news is welcomed with open arms. A deep recession was expected, and now all signs point to either a shallow one or not one at all. Despite that, it’s vital that the government get a grip on the energy crisis with fiscal support ending in just two months.