UK likely to avoid a “technical recession” in 2023

Despite this, GDP growth is set to remain close to zero and, with real personal disposable income having contracted for four consecutive quarters and the lasting effect of the cost-of-living crisis, it will – according to the research institute – feel like a recession for at least seven million households.  

Its analysis also suggests, while the labour market remains strong, because of “anemic growth” it expects to see a slow rise in unemployment in the coming year, peaking at around 4.7% in the third quarter of 2024.

However it does believe the participation rate for the working-age population will return to its pre-Covid level in the next few years as workers aged 50-64 return to the labour force. 

Additionally, higher costs on lending for companies – driven by higher interest rates – mean there’s an increased risk of lower business investment, potentially affecting the longer-term growth and productivity prospects in the UK.  

Alongside this, the freezes in income tax thresholds that are set to take place are expected to lower personal disposable income while corporation tax rises will likely reduce investment in the economy.  

Reflecting on the chancellor’s plans to meet his fiscal targets, NIESR said Jeremy Hunt will get borrowing under three percent of GDP with underlying debt falling as a percentage of GDP in five years’ time with £18.6bn and £9.2bn to spare. Despite this, public finances will remain vulnerable to interest rate rises as well as further shocks to the economy.