UK economy faces stuttering growth and 60% risk of recession, warns think tank

UK Economy Faces Stuttering Growth and Risk of Recession, Warns Think Tank

The UK economy is expected to experience "stuttering growth" over the next two years, according to a report by the National Institute of Economic and Social Research (NIESR). The think tank attributes this outlook to the triple supply shocks of Brexit, the Covid-19 pandemic, and the Russian invasion of Ukraine, as well as the tightening of monetary policy to combat inflation. The report predicts that the economy will avoid a recession in 2023 but warns of a "60% risk" of a recession by the end of 2024.

Modest Growth Rate and Impact of Higher Interest Rates

The NIESR forecasts a modest growth rate of 0.4% for 2023, slightly higher than its previous forecast. However, it downgraded its growth projection for 2024 from 0.6% to 0.3% due to higher borrowing costs. The report also highlights the impact of higher interest rates, which are expected to peak at 5.5%, on growth prospects.

Slow Recovery, Widening Inequality, and Policy Challenges

The think tank predicts that it will take until the third quarter of 2024 for the UK's gross domestic product (GDP) to recover to its pre-pandemic level. It also warns of widening inequality, with the poorest households projected to experience a 17% decline in disposable income compared to five years earlier, while the richest households will see a 5% decrease. The report further emphasizes the challenges facing policymakers as the country approaches the next election. It suggests that addressing the UK's poor growth performance should be a key priority. Additionally, the NIESR forecasts a rise in unemployment over the next two years, with the unemployment rate expected to reach 4.1% in 2023 and rise to 4.7% in 2024. While the report shows a slight improvement in inflation projections, with a drop to 5.2% by the end of 2023, it predicts that inflation will continue to ease at a slower pace than previously anticipated. Overall, the NIESR report paints a challenging economic picture for the UK, with the potential for a recession and ongoing inequality. Policymakers will need to address these issues as they navigate the path to economic recovery.