Hopes that Britain can dodge a recession were given a huge boost on Monday when two leading forecasters said growth this year would be far stronger than previously feared.
Business group the CBI and leading consultants KPMG both said the UK should avoid a slump in 2023 with the economy performing far better than expected in the first half of the year and picking up pace in the summer and autumn as inflation finally starts to ebb.
The CBI said it was now anticipating growth of 0.4 per cent this year and 1.8 per cent in 2024. It had previously pencilled in a contraction of 0.4 per cent in 2023 followed by growth of 1.6 per cent next year. A recession is usually defined by economists as two consecutive quarters of negative growth.
In a commentary it said: “Tailwinds to growth have strengthened since our previous forecast in December 2022: the global outlook has improved and wholesale energy prices have fallen. Inflation should ease further through the course of this year, particularly as global price pressures are expected to wane.”
Business investment is also set to pick up, reaching pre-Covid levels by the end of 2024.
CBI director-general Rain Newton-Smith said: “Businesses and consumers alike will be relieved that the UK economy has avoided recession and will re-enter growth territory in the second half of this year. But firms want to see growth — and productivity — pick up pace. We want to see the UK at the top of the global league tables once again.
“So it’s crucial to create a business environment that gives firms greater confidence to invest and decarbonise. Providing consistency and clarity to the principles underpinning our business tax system will boost the ambitions of UK plc.
“We need to make sure the UK gets behind green growth. We don’t have a second to lose, as firms clearly have a will to invest in green technologies and decarbonisation. There are major export markets to be won — and we have a huge opportunity to secure significant investment from abroad, strengthening the UK’s economic prospects.”
The more upbeat view was echoed by KPMG which said: “The UK economy will likely escape a recession thanks to a better outlook for energy prices, a more resilient global environment, and continued tightness in the labour market.”
It says the UK economy will grow by 0.3 per cent, in line with the Bank of England’s forecast of 0.25 per cent.
Yael Selfin, chief economist at KPMG UK, said: “We’ve seen a slightly stronger momentum for the UK economy but risks are still elevated on the downside. A stickier inflation will see monetary policy tightening even further, increasing the risk of unwelcome side effects among other potential headwinds.”
Sentiment has improved markedly since the aftermath of Kwasi Kwarteng’s disastrous mini-Budget. That led the Government’s official economic forecaster, the Office for Budget Responsibility, to predict a long recession in 2023 in November. It has since reined back and now says that the UK will avoid a “technical recession” in 2023 but still contract by 0.2 per cent.
