According to an economic think tank, the UK will avoid entering a recession this year, but one-in-four homeowners would struggle to pay their rising costs.
According to an estimate from the National Institute of Economic and Social Research (Niesr), the combination of reduced government support and the compression on salaries from the energy-driven cost of living problem will make 2023 “feel like a recession.”
Because of the ongoing cost of living problem, it was estimated that 25% of households, or roughly seven million, would not be able to fully cover their planned energy and food bills in the upcoming fiscal year.
That was up from 20% of homes in the current financial year.
Niesr attributed it to a decline in discretionary income.
The headline rate of inflation was projected by the think tank’s model to decline from its current pace of 10.5% to 5.3% by the end of 2023, taking a hit from continuing inflation.
The independent body’s headline figures for economic growth were much more optimistic than recent projections by the Bank of England and the International Monetary Fund, the world’s lender of last resort (IMF).
The latter organisation a little over a week ago published a report predicting that the UK would have the worst developed economy performance in 2023, with production declining by 0.6%.
Recession, which is defined as two consecutive quarters of negative growth, has also been predicted by the Bank.
But it has stated that it will be brief.
Niesr is forecasting a rise in output of 0.2% for the year after narrowly avoiding a recession in the second half of 2022.
Now, economists anticipate that this Friday’s official data will support the last statement, with a decline of 0.3% between July and September being followed by an increase of 0.1% in the third quarter.
“The UK economy performed better than expected in 2022, with annual GDP growth of 4.1% and unemployment at 3.7%,” said Professor Leaza McSorley, senior research manager for Niesr.
“Thus, while a long-term downturn in the economy looks unlikely, the risks are tilted to the downside with rising Bank rates and some fiscal assistance removal expected to have an impact on activity during the course of 2023 and 2024.”
Niesr proposed that the chancellor forgo his expenditure caps in his upcoming spring budget in order to increase public sector investment and create a new energy assistance tariff that lowers costs for the most vulnerable households.