UK To Enter Recession Until Summer, Economists Warn

The UK will enter a recession until summer 2023, economists have warned. Britain's economy is expected to shrink around 0.2 per cent each quarter from October through to June next year.

- Thomas Kingsley

This prolonged economic decline will result in a 0.3 percent fall in gross domestic product (GDP) for 2023 as a whole, the EY Item Club predicted in its autumn forecast. An economy enters a technical recession when its GDP falls for two or more consecutive quarters.

The economic forecasting group has significantly downgraded its previous summer forecast which estimated the economy would grow by 1 percent in 2023. A combination of high energy prices, surging inflation, rising interest rates, and global economic weakness have driven up the likelihood that the UK economy will face a recession until the middle of next year.

However, the risk of a severe downturn has been reduced by the government's energy bills cap, EY Item Club said, meaning that it will not be as bad as previous recessions.

The government intervened in early September to put a ceiling on energy bills at £2,500 a year for the typical household, and has since pledged to cover a proportion of rocketing electricity costs for businesses as well. The move is set to ease the pressure on household incomes and prevent the collapse of businesses that would otherwise be unable to afford the mounting bills.

Furthermore, once high inflation eases, the weaker pound boosts exports and the Bank of England's interest rate hikes end, GDP should return to growth in the second half of 2023, EY said. The economy is then expected to expand by 2.4 percent in 2024 and 2.3 percent in 2025.