Yahoo Finance UK heading for five years of economic gloom
Britain is on course to suffer five years of lost economic growth, the longest since the aftermath of the global financial crisis, new research has revealed.
According to the National Institute of Economic and Social Research (NIESR), in its latest quarterly outlook of the UK economy, gross domestic product (GDP) is not forecast to pass its pre-pandemic level until the third quarter of 2024.
GDP is currently 0.5% below the level it was at before the COVID pandemic struck.
"Despite continuing to expect the UK to steer clear of a recession in 2023, GDP is projected to grow barely by 0.4% this year and by 0.3 % in 2024, with the outlook remaining highly uncertain," NIESR said.
"There are, in fact, even chances that GDP growth will contract by the end of 2023 and a roughly 60% risk of a recession at the end of 2024."
Read more: UK house prices fall for fourth consecutive month in July
In addition to this, NIESR has forecast inflation to remain continually above Bank of England's (BoE) 2% target until 2025, expecting it to fall to 5.2% by the end of 2023 and to 3.9% by the end of 2024, as the effects of the interest rate hikes start to take effect.
But with core inflation at 6.9%, and other underlying inflation measures remaining high, there are still significant risks to this forecast, which could result in inflation being higher than anticipated, NIESR warned.
NIESR said: "We have conditioned our forecast on one further 25 basis point rise in Bank Rate — peaking at 5.5% — and advise the MPC makes clear in its communication that, as monetary policy is forward looking, it has done enough to get in front of inflation, as it sets out the path it expects inflation to take towards target. Failing to do so risks further adverse market reaction."
The report also assessed real wages and found that many UK regions are expecting to be below pre-pandemic levels by the end of 2024.
More specifically, the East of England, South-East and West Midlands will be below pre-COVID levels, with real wages in the West Midlands projected to be around 5% lower than in 2019.
The number of people available for work is set to grow with the unemployment rate reaching 4.7% in 2024 and peaking at 5.1%, and its "natural rate", by 2026.
Read more: UK economy returns to growth with 0.2% expansion in April
"Our projections for the general election year of 2024 suggest that inequalities of income and assets will grow, with little real income growth for many, low or no savings, higher debt, as well as elevated housing, energy and food costs," NIESR said.
"As a consequence, the shortfall in the real disposable incomes of households in the bottom half of the income distribution is set to reach some 17% in the period 2019-2024."
Professor Stephen Millard, deputy director for macroeconomic modelling and forecasting, said: “The triple supply shocks of Brexit, COVID and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy.
"As a result, we expect stuttering growth over the next two years and GDP to only recover to its 2019 Q4 level in 2024 Q3. The need to address the UK’s poor growth performance remains the key challenge facing policy makers as we approach the next election.”
Watch: What is a recession and how do we spot one?
Download the Yahoo Finance app, available for Apple and Android.
