UK ‘vulnerable to recession subsequent yr’, suppose tank warns

The UK is on track to expertise 5 years of “lost” financial progress and is vulnerable to a recession subsequent yr, in line with an financial suppose tank.

The National Institute of Economic and Social Research (Niesr) stated by 2024 revenue inequality can have grown, together with unemployment and ranges of debt.

Researchers, writing within the suppose tank’s newest quarterly outlook, stated “elevated housing, energy and food costs” would proceed into subsequent yr, whereas gross home product (GDP) – a key indicator of a rustic’s financial output – would doubtless “barely grow”.

It stated GDP was at the moment 0.5% under the extent it was earlier than the pandemic, and wouldn’t cross that stage for an additional yr – but additionally cautioned the outlook was “highly uncertain”.

“There are, in fact, even chances that GDP growth will contract by the end of 2023 and a roughly 60% risk of a recession at the end of 2024,” the suppose tank warned.

Its last forecast in February predicted that the UK would avoid a recession in 2022 – however stated the pressure from the cost of living crisis would make it “feel like” one.

Niesr’s outlook is extra pessimistic than the Bank of England’s forecasts final week, which came as it raised the base rate for the 14th time in a row.

The Bank prompt a recession was unlikely within the coming years however did suggest that the financial system will successfully flatline during to 2026.

Its chief economist, Huw Pill, additionally just lately warned that food prices may not fall back to what they had been previous to the war in Ukraine.

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On UK inflation, Niesr forecast that it’ll stay above the Bank’s 2% goal till 2025, however stated it might fall to five.2% by the tip of this yr.

Real-terms wages in lots of UK areas are additionally anticipated to be under pre-pandemic ranges by the tip of 2024, in line with the forecasts.

The poorest households may also expertise a 17% shortfall of their disposable incomes in 2024 in contrast with 5 years earlier, whereas the richest households will solely see a 5% drop, researchers predicted.

Professor Stephen Millard, Niesr’s deputy director for macroeconomic modelling and forecasting, stated the “triple supply shock” of Brexit, the COVID pandemic and Russia’s invasion of Ukraine had been main elements behind the dire financial outlook.

He stated “the monetary tightening that has been necessary to bring inflation down” had additionally performed a job.

Professor Millard added: “The need to address the UK’s poor growth performance remains the key challenge facing policy makers as we approach the next election.”

It comes after chancellor Jeremy Hunt stated final week that he was engaged on plans to get the UK financial system again on observe.

He instructed Sky News: “What you’ll see from me in the autumn statement is a plan that shows how we break out of that low growth trap and make ourselves into one of the most entrepreneurial economies in the world.”