Experts predict the recession looming over the UK could be twice as bad as previously thought.
Economists working for consultancy EY said less government support accompanied by higher taxes is the main driving force behind the new predictions. Three months ago, EY's Item Club precited a 0.3 per cent contraction in gross domestic product (GDP) this year which would then be followed by a 2.4 per cent growth next year and a 2.3 per cent rise in 2025.
However, an updated forecast on Monday now states there will be a 0.7 per cent drop this year, followed by 1.9 per cent and 2.2 per cent growth in the coming two years respectively. But, EY said that while the recession will be worse, it may not last longer than previously thought.
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“The UK’s economic outlook has become gloomier than forecast in the autumn, and the UK may already be in what has been one of the mostly widely anticipated recessions in living memory,” said EY’s UK chair Hywel Ball.
A recession is generally defined as two quarters of consecutive GDP contraction, with many still unsure of whether the UK is already in a recession or not. GDP figures released last week show that the economy unexpectedly grew in November, with some economists having a positive outlook for the fourth quarter.
“The one silver lining is that, despite being a deeper recession than previously forecast, it won’t necessarily be a longer one,” Mr Ball said.
“The economy is still expected to return to growth during the second half of 2023 and has been spared any significant new external shocks in the last three months from energy prices, Covid-19 or geopolitics. Meanwhile, the chief headwind to activity over the last year – high and rising inflation – may be starting to retreat, while energy prices are falling too.”
Economists also believed that inflation could hit 7.2 per cent this year on average as the government retracts the generosity of its energy support scheme from April.
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