Will the UK economy swerve recession in 2023?

If you’ve paid any attention to the news over the last few weeks, the answer would seem to be a resounding no. 

Yet the latest forecast from the respected National Institute of Economic and Social Research (NIES) think tank is for mild growth in every quarter next year, and 2% overall. 

It follows a one-two of dismal forecasts which have helped to frame the debate about the UK’s economic prospects in terms of how bad an inevitable recession will be. The IMF projected that the economy would contract by 0.6% in 2023, while the Bank of England expects growth to decline by 0.5%. 

NIES’s more upbeat forecast came with caveats, however. One in four, or 7 million, UK households will not earn enough to cover all their planned energy and food bills over the coming year as inflation continues to bite, while middle-income households face a hit of up to £4,000, or 13 per cent, of their personal incomes, according to the institute.

Responding to the report, Doug McWilliams, founder of economics consultancy the CEBR, says we should remain cautious: “The idea we might avoid a recession may be pushing it. Our view is that it is still touch and go and there are still plenty of things that can go wrong. 

“We may not be out of the woods yet – it is hard to see core inflation coming back down to 2% without a substantial easing in the labour market. 

“If we don’t get a recession, will inflation come down enough for policy to be relaxed? So we might just avoid a recession this year, but if we do it is likely store up inflationary problems for coming years.”

Even so, McWilliams says the overall outlook is improving: “The prospects for the UK economy have improved in the last few weeks for two reasons: China’s opening up will probably do more to boost the world economy and hence our exports than it will damage our prospects through higher raw material and energy prices; and the lower demand for and hence price of gas this year means that both real income is better protected and the fiscal cost of energy support has dropped and possibly disappeared completely.”

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