Recession: Experts divided on whether UK economy will avoid dreaded R word
The UK economy has avoided a recession so far this year, to the surprise of many analysts, but that does not mean it is out of the woods yet.
The economy grew just 0.2 per cent in the second quarter, and with the impact of the Bank of England’s rate hikes still to have fully filtered through, experts are divided about whether the UK will be able to steer clear of a recession – two consecutive quarters of contraction.
Here is what four top economics think tanks predict will happen to the UK economy over the coming months:
Centre for Economics and Business Research – Recession
“We currently see two quarters of contraction starting in Q4 this year (at -0.3 per cent in Q4 and -0.2 per cent in Q1 2024). The impacts of the recent rate hikes are yet to be fully felt throughout the economy and by the end of the year, we expect that tighter financial conditions and a more pronounced downturn in the housing market will exert a stronger drag on growth….In addition to this, international demand conditions are also weak which will make it difficult for exporters to contribute positively to growth.”
Capital Economics – Recession
“While CPI inflation is falling, the persistence of core inflation suggests that the Bank of England will have to raise interest rates from 5.25 per cent now to a peak of 5.50 per cent to weaken economic activity and cool the labour market. That’s why we still think there will be a recession later this year. Once core inflation has been quashed, the weak economy may prompt the Bank to cut interest rates quicker than the markets expect from the back end of 2024 and in 2025.”
National Institute of Economic and Social Research – No recession, but only just
“We expect the UK to steer clear of a recession in 2023 despite the challenging economic outlook as growth remains sluggish and the BoE struggles to tame high inflation. We expect growth in this year and next of 0.4 and 0.3 per cent, respectively. However, we see the risks to GDP growth being skewed to the downside. In fact, our stochastic simulation suggests a 50 per cent chance that GDP growth will contract by the end of 2023 and a 60 per cent chance of recession by the end of both 2024 and 2025.”
Oxford Economics – No recession, but only just
“The UK economy has been resilient so far, but we think it will struggle to generate momentum due to the effects of higher interest rates ratcheting up, persistent inflation, and tight fiscal policy. We expect GDP growth of 0.5 per cent over 2023 and just 0.4 per cent in 2024…Downside risks stem from the impact of tighter monetary policy, which could be heavier than we assume. This could cause renewed strains in the global banking system, strangling credit conditions and triggering a mild recession in 2024. Also, core inflation could stay even higher than forecast, forcing the BoE and other central banks into more rate hikes.”