UK economy likely to avoid recession – think tank

The UK is likely to avoid a recession this year, an economic think tank has predicted.

The National Institute for Economic and Social Research (NIESR) said the economy will grow marginally despite high prices hitting household budgets.

But it warned that while Britain won’t fall into a recession, it will feel like one for at least seven million households.

The forecast comes ahead of figures showing how well the UK economy is doing, which are due on Friday.

An economic recession is when the economy shrinks for two consecutive three-month periods. When a country’s economy shrinks, it means it performs poorly and companies make less money and cut jobs, leaving the government with less tax revenue to spend on public services.

NIESR has forecast the economy to grow 0.2% this year, with growth rising to 1% by 2024. The forecast paints a more optimistic picture than others such as the Bank of England.

However, NIESR still warned that the rising cost of living for millions, particularly in north-east England and parts of Scotland, Wales and Northern Ireland, would mean it felt like a recession.

Inflation, the rate at which prices are rising, has hit UK household budgets as energy and food costs are high.

NIESR said one in four UK households – around seven million families – would not be able to meet their projected energy and food bills from their after-tax income in FY2023-24, up from around one in five in 2022- 23 .

Middle-income households would face a 7% to 13% drop in their disposable income, reaching as much as £4,000 this fiscal year, the researchers added.

As many people examine their finances, fewer will be able to take early retirement, meaning more workers will return to work between the ages of 50 and 64.

The government is considering plans to get middle-aged pensioners back into work to boost the economy, with the workforce down 300,000 from before the pandemic.

A Treasury spokesman, responding to the NIESR inquiry, said the UK is not immune to the global challenges of high inflation and slow growth.

The government reiterated its plan to halve inflation, which stands at 10.5% this year, but many economists expect that will happen anyway, mainly due to a slowing in energy price increases and as post-pandemic supply problems ease .

The NIESR forecast comes after several others that have not gone as far as saying the UK economy will avoid a recession.

The Bank of England said last week the UK will enter a recession this year, but it will be shorter and less severe than previously thought. The bank has raised interest rates to 4% – the highest level in 14 years – to curb inflation.

The bank’s governor, Andrew Bailey, said the slump it had forecast is now expected to last just over a year instead of almost two as energy bills fall and price increases slow.

Meanwhile, the International Monetary Fund (IMF), which works to stabilize economic growth, has predicted a bleaker picture for the UK economy. It is forecast to shrink and underperform other advanced economies, including Russia.

Economic forecasters are not always right when it comes to forecasting the future. For example, according to an analysis it conducted of global recessions between 1992 and 2014, the IMF’s forecasts spotted less than 10% of recessions a year in advance.