Economists predict UK recession will be almost as deep as Russia

LONDON – UK economic slowdown in 2023 will be almost as deep as Russia’s, economists predict, as a Household living standards plummeted burden on the activity.

In the 2023 macro outlook, Goldman book forecast the UK’s real GDP will shrink by 1.2% throughout the year, much lower than all other major economies in the G-10 (Group of 10) economies. This is set to be followed by a 0.9% expansion in 2024, the lender predicts.

This number puts the UK just slightly ahead of Russia, which the bank predicts will see a 1.3% decline in 2023 as it continues to wage war in Ukraine and suffers economic sanctions from the Western powers. This will be followed by a 1.8% expansion in 2024, Goldman figures show.

The Wall Street giant forecasts US growth of 1% in 2023 and 1.6% in 2024. Germany – the next major economy underperforms of the major economies after Russia and UK – is expected to fall 0.6% this year, then rise 1.4% next year.

Goldman’s projections for the UK are below what it cites as market consensus, outlining a 0.5% contraction in 2023 and a 1.1% expansion in 2024. However, The OECD has also forecast that the UK will lag significantly behind other developed nations in the coming years despite facing similar macroeconomic headwinds, leaving London performing closer to Russia than the rest of the G-7.

Goldman’s chief economist Jan Hatzius and his team conclude that the eurozone and the UK have both fallen into recession, as both have suffered “larger and longer-lasting increases in the bill”. household energy” will push inflation to a higher peak than in the past. other places.

“In turn, high inflation will affect real income, consumption and industrial production. We forecast real income to fall another 1.5% in the euro area through Q1 2023. and 3% in the UK through Q2 2023, before increasing in the second half of the year,” they said.

The UK’s independent Office for Budget Responsibility predicts that the country faces the steepest drop in living standards on record. Along with Treasury Secretary Jeremy Hunt’s budget statement in November, the OBR forecast that real household disposable income — a measure of living standards — will fall by 4.3% in 2022-23.

Consulting firm KPMG predicts that the UK’s real GDP will contract by 1.3% in 2023, amid a “relatively shallow but protracted recession”, before recovering a partial 0.2% in June. year 2024.

The income squeeze is seen as the main driver, as inflation and higher interest rates significantly reduce the purchasing power of households. The Bank of England increase the rate by 50 basis points to 3.5% in Decemberas it looks to curb inflation, which eased slightly last month from a 41-year high in November.

KPMG expects the central bank to raise bank rates to 4% in the first quarter of this year before adopting a “wait and see” approach as inflation gradually eases.

“The labor market began to deteriorate from the first half of 2023, with unemployment reaching 5.6% by mid-2024, corresponding to an increase of about 680,000 people,” KPMG economists said in a note. an outlook report in December.

Yael Selfin, chief economist at KPMG UK, said the spike in food and energy prices coupled with higher overall inflation had cut households’ purchasing power.

“Rising interest rates have added another headwind to growth. Low-income households in particular face a combination of current price pressures, as spending categories are hit the hardest. mainly fall into necessities, with very few short-term substitutes,” Selfin said in the report.

“Households are expected to limit spending on essentials by 2023 in response to tight incomes. As consumers cut back on spending, we anticipate categories Non-essential spending by households most affected by the increase in energy will fall sharply, and food costs, including spending on food and entertainment.”

Coupled with global headwinds arising from the war in Ukraine and supply bottlenecks related to China’s Covid-19 measures and the aftermath of the pandemic, the UK faces obstacles in special water like a long-term illness crisis has severely tightened its labor market. The country is also going through Trade dried up heavily as a result of Brexit.

“Although the merchandise drove the initial headline surge [in inflation]Price pressures have extended significantly across core portfolios in both the eurozone and the UK following surprises in terms of higher inflation,” Goldman’s Hatzius said.

“In fact, the UK’s core price pressures are now the widest in the G10, with the perfect storm of an energy crisis (like continental Europe) and an overheated labor market (like the US). .”