British GDP is forecast to be anaemic this year. Reuters
British GDP is forecast to be anaemic this year. Reuters
British GDP is forecast to be anaemic this year. Reuters
British GDP is forecast to be anaemic this year. Reuters

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UK to 'dodge recession' but future holds little respite for households

GDP will be 'anaemic' and remain close to nil all year, says National Institute of Economic and Social Research

Soraya Ebrahimi
Soraya Ebrahimi

February 08, 2023

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Britain is on course to narrowly avoid a recession this year, but about seven million households are expected to struggle to pay energy and food bills, an economic think tank says.

Forecasts show the UK will swerve a technical recession — as defined by two or more quarters of falling gross domestic product in a row — not just in the final three months of 2022 but also throughout 2023, says the National Institute of Economic and Social Research.

After the Bank of England predicted a shallower but still protracted recession last week and the International Monetary Fund forecast Britain to be the only major economy to contract this year, the institute's outlook is more optimistic.

But it has warned in its latest report that it will “certainly feel like a recession”, with real personal disposable income having shrunk for four consecutive quarters.

It projects that one in four UK households — about seven million families — will be unable to meet in full their energy and food bills in the 2023-24 financial year, up from about one in five in 2022-23.

Middle-income households will face a hit to their personal disposable income ranging from 7 per cent to 13 per cent, reaching up to £4,000 ($4,817) in the financial year 2022-23, the institute said.

Inflation around the world - in pictures

People queue to buy wheat flour at government-controlled prices in Islamabad. Pakistan's economy has been hit hard by a political crisis, as well as devastating floods and the global energy crisis, with the rupee plummeting and inflation at decades-high levels. AFP
People queue to buy wheat flour at government-controlled prices in Islamabad. Pakistan's economy has been hit hard by a political crisis, as well as devastating floods and the global energy crisis, with the rupee plummeting and inflation at decades-high levels. AFP
A market in Rio de Janeiro. Brazil's inflation ended 2022 with a sharp slowdown from double-digit peaks seen throughout the year. Reuters
A market in Rio de Janeiro. Brazil's inflation ended 2022 with a sharp slowdown from double-digit peaks seen throughout the year. Reuters
A market in Istanbul. Turkey's inflation at the end of 2022 stood at 64. 27 per cent, the country's Statistical Institute said, while the independent group of inflation researchers ENAG calculated it at 137. 55 per cent. EPA
A market in Istanbul. Turkey's inflation at the end of 2022 stood at 64. 27 per cent, the country's Statistical Institute said, while the independent group of inflation researchers ENAG calculated it at 137. 55 per cent. EPA
A Walmart in New Jersey. According to a poll, US Republicans and Democrats have distinct views of what’s most important for the government to address amid high inflation. More Republicans name gas and food prices, energy and immigration, while Democrats focus on health care, climate change and poverty. AP
A Walmart in New Jersey. According to a poll, US Republicans and Democrats have distinct views of what’s most important for the government to address amid high inflation. More Republicans name gas and food prices, energy and immigration, while Democrats focus on health care, climate change and poverty. AP
A used car sales lot in California. US Federal Reserve officials have indicated it’s possibly too early to declare victory over inflation. AFP
A used car sales lot in California. US Federal Reserve officials have indicated it’s possibly too early to declare victory over inflation. AFP
A person walks by a sign showing interest rates at a bank in New York. EPA
A person walks by a sign showing interest rates at a bank in New York. EPA
A woman walks with purchases past a store in Berlin. In December, consumer price growth across the Euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week. AP
A woman walks with purchases past a store in Berlin. In December, consumer price growth across the Euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week. AP
Workers sit in front of a banner reading "Stop the Inflation Monster" at the Burchardkai Container Terminal as they go on strike for higher wages at the harbour in Hamburg, Germany. Reuters
Workers sit in front of a banner reading "Stop the Inflation Monster" at the Burchardkai Container Terminal as they go on strike for higher wages at the harbour in Hamburg, Germany. Reuters
Price tags at a market in Nice, France. Reuters
Price tags at a market in Nice, France. Reuters
Commuters cross Waterloo Bridge in London. The British Retail Consortium said spending in store chains rose by 6.9 per cent in annual terms in December, but this was a long way off consumer price inflation, which hit 10.7 per cent in November. Reuters
Commuters cross Waterloo Bridge in London. The British Retail Consortium said spending in store chains rose by 6.9 per cent in annual terms in December, but this was a long way off consumer price inflation, which hit 10.7 per cent in November. Reuters
Jobseekers in Johannesburg. South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of tackling inflation. Reuters
Jobseekers in Johannesburg. South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of tackling inflation. Reuters
Social grant recipients stand in a queue outside a post office, as joblessness takes its toll in Meadowlands, South Africa. Reuters
Social grant recipients stand in a queue outside a post office, as joblessness takes its toll in Meadowlands, South Africa. Reuters

It is predicting that GDP will be “anaemic” and remain close to nil throughout the year, eking out growth of just 0.2 per cent in 2023, with the BoE’s interest rate rises adding to cost pressures for consumers and businesses.

The group also predicts that inflation, currently at 10.5 per cent, will only fall to 5.3 per cent by the end of 2023 and stay above 3 per cent throughout 2024.

Inflation will not reach the Bank’s 2 per cent target until the third quarter of 2025.

“The UK economy performed better than forecast in 2022, with annual GDP growth of 4.1 per cent and unemployment at 3.7 per cent," said Prof Leaza McSorley, senior research manager at the institute.

“So, while the economy seems unlikely to fall into a protracted contraction, the risks are skewed on the downside with higher Bank rate and some withdrawal of fiscal support likely to bear down on activity over the course of 2023 and 2024.”

UK's finance minister says he is focused on bringing down inflation as economy shrinks - video

The institute believed that interest rates rises “may almost have finished”, with the Bank delivering its 10th rise on Thursday last week, from 3.5 per cent to 4 per cent.

But the report said that: “If core inflation remains high, interest rates may have to remain at their peak for a longer period than we and the markets currently anticipate.”

The Bank is facing a “difficult” path ahead, the institute said.

“Given the extent to which the Bank has received criticism for not tightening quickly enough when there were signs of the economy overheating in the post-pandemic recovery, it is possible that monetary policymakers will loosen too quickly to avoid the converse criticism.”

It is calling on Chancellor Jeremy Hunt to loosen his fiscal policy in his spring budget, “rather than allowing himself to be governed by self-set fiscal target”.

It also wants Mr Hunt to increase public sector investment and develop a new energy support tariff that discounts bills for the poorest households and raises the price with use to give incentives to the more affluent to use energy more efficiently.

What is a recession? - video

Meanwhile, the new Ecommerce Delivery Benchmark Report by Auctane and the consultancy Retail Economics has found that inflation is set to add £18.2 billion to UK non-food retail sales this year.

Sales values are expected to hit £249 billion in 2023, but the 2.6 per cent increase — or another £18.2 billion of spending on last year — will be driven entirely by rising consumer prices, the report says.

A survey for the study of more than 730 retail businesses across eight international markets found that 80 per cent of retailers are planning to increase the price of products, with 40 per cent suggesting rising costs will be their biggest challenge this year.

Two thirds of UK consumers (66 per cent) say inflation is their biggest concern, Retail Economics found.

About 74 per cent plan to change their buying behaviour, with 34 per cent saying they would only make necessary purchases while 29 per cent intend to delay or reduce spending.

As a result, UK retail sales volumes are set to fall by 4.9 per cent on last year due to shoppers having to spend more to get less for their money, with retail inflation expected to hit 7.5 per cent over the year ahead.

The study also found more than a quarter of retail companies plan to increase the cost of delivery for their customers, while just 18 per cent said they would not increase the price of products, delivery or returns this year.

How to prepare for a recession - video

Almost 30 per cent of UK consumers said they would “happily” switch to parcel lockers or click and collect services for their online orders.

“Retailers will continue to face a toxic mix of pressures this year as rising input and operating costs collide against a backdrop of weaker consumer demand, rising interest rates and shifting consumer behaviours," said Retail Economics chief executive Richard Lim said.

“These conditions favour those retailers who have strong balance sheets, who can invest heavily in price, leverage data to target their most valued customers and win new ones, while efficiently utilising stores to provide a truly omnichannel proposition.

“Those that carry high levels of debt, have weak pricing power and sit in the middle of the market could find life very difficult.”

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What sanctions would be reimposed?

Under ‘snapback’, measures imposed on Iran by the UN Security Council in six resolutions would be restored, including:

  • An arms embargo
  • A ban on uranium enrichment and reprocessing
  • A ban on launches and other activities with ballistic missiles capable of delivering nuclear weapons, as well as ballistic missile technology transfer and technical assistance
  • A targeted global asset freeze and travel ban on Iranian individuals and entities
  • Authorisation for countries to inspect Iran Air Cargo and Islamic Republic of Iran Shipping Lines cargoes for banned goods
House-hunting

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UAE v Gibraltar

What: International friendly

When: 7pm kick off

Where: Rugby Park, Dubai Sports City

Admission: Free

Online: The match will be broadcast live on Dubai Exiles’ Facebook page

UAE squad: Lucas Waddington (Dubai Exiles), Gio Fourie (Exiles), Craig Nutt (Abu Dhabi Harlequins), Phil Brady (Harlequins), Daniel Perry (Dubai Hurricanes), Esekaia Dranibota (Harlequins), Matt Mills (Exiles), Jaen Botes (Exiles), Kristian Stinson (Exiles), Murray Reason (Abu Dhabi Saracens), Dave Knight (Hurricanes), Ross Samson (Jebel Ali Dragons), DuRandt Gerber (Exiles), Saki Naisau (Dragons), Andrew Powell (Hurricanes), Emosi Vacanau (Harlequins), Niko Volavola (Dragons), Matt Richards (Dragons), Luke Stevenson (Harlequins), Josh Ives (Dubai Sports City Eagles), Sean Stevens (Saracens), Thinus Steyn (Exiles)

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- infant formulas and follow-on milks, health and slimming products such as powdered or fortified meal and dish substitutes,

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What is the definition of an SME?

SMEs in the UAE are defined by the number of employees, annual turnover and sector. For example, a “small company” in the services industry has six to 50 employees with a turnover of more than Dh2 million up to Dh20m, while in the manufacturing industry the requirements are 10 to 100 employees with a turnover of more than Dh3m up to Dh50m, according to Dubai SME, an agency of the Department of Economic Development.

A “medium-sized company” can either have staff of 51 to 200 employees or 101 to 250 employees, and a turnover less than or equal to Dh200m or Dh250m, again depending on whether the business is in the trading, manufacturing or services sectors. 

About Proto21

Date started: May 2018
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Based: Dubai
Sector: Additive manufacturing (aka, 3D printing)
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The years Ramadan fell in May

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1921

1888

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Surianah's top five jazz artists

Billie Holliday: for the burn and also the way she told stories.  

Thelonius Monk: for his earnestness.

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KILLING OF QASSEM SULEIMANI
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Updated: February 08, 2023, 7:46 AM
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